President orders that withholding of SS taxes be deferred, but there are details to be ironed out

On August 8, President Trump issued a Memorandum deferring payroll tax obligations due to COVID-19. The Memorandum directs the Secretary of the Treasury to defer the withholding, deposit, and payment of the 6.2 percent employee’s share of Social Security taxes, between September 1 through the end of this year.

The order is intended to provide relief to employees who are facing economic hardship because of COVID-19-related restrictions. According to the Memorandum, “American workers have been particularly hard hit by this ongoing disaster. While the Department of the Treasury has already undertaken historic efforts to alleviate the hardships of our citizens, it is clear that further temporary relief is necessary to support working Americans during these challenging times.”

The Memorandum directs the Secretary of the Treasury to issue rules and regulations pertaining to the deferral.

Payment “shall” be deferred for employees earning less than $4,000, calculated pre-tax, on a biweekly basis ($104,000 annually). This portion of the Memorandum does state that the deferral is available to those whose biweekly income “is generally less than” when referring to the biweekly threshold of $4,000, but it does not mention any other conditions or situations where the threshold might be higher for certain individuals.

The Treasury Department is also directed to consider the possibility of forgiveness for these funds, rather than the repayment. It is likely that Congress will explore the option of forgiveness as well. Otherwise, employees might be forced to pay twice the normal amount of payroll taxes beginning in January 2021, which would be a burden to employees and defeat the purpose of the deferral. Notably, the U.S. Chamber of Commerce and a coalition of other industries recently sent a letter to Congressional leaders requesting that Congress take action to forgive any employee obligation to repay the taxes.

There are several factors that could render the Memorandum moot between now and September 1, including another stimulus bill similar to the CARES Act or guidance by the Secretary of the Treasury. Employers may want to delay taking any action until additional guidance is provided.