SEMA eNews Vol. 23, No. 36, September 3, 2020

U.S. Treasury Department Issues Guidelines on Voluntary Deferment of Workers’ Payroll Taxes; Companies Express Repayment Concerns

By SEMA Washington, D.C., Staff

President Trump issued an Executive Order on August 8 to establish a voluntary deferral of workers’ federal payroll taxes for September 1, 2020 to December 31, 2020, and the U.S. Treasury Department issued a three-page guidance document on August 28 on how the program would work. The payroll tax deferral program applies to individuals with wages below a bi-weekly threshold of $4,000 (an annual salary of $104,000 a year or less). The deferral only applies to the 6.2% Social Security tax, not the 1.45% Medicare tax.

The Treasury Department is giving participating companies from January 1 to April 30, 2021, to remit the deferred taxes, implying that companies may give workers an option of double withholding their Social Security tax during the first quarter of 2021 as one way to remit the owed taxes. The deferral policy does not address unknowns such as getting uncollected taxes from workers who quit or were laid-off or companies that went out of business.

The payroll tax deferral program has received a tepid response from the business community and Congress. Since the payroll tax is simply being deferred, not forgiven, many companies are concerned about employees understanding this distinction, or being able to pay the future obligation. Businesses would then be required to remit the deferred taxes after January 1, 2021, even if the worker has not arranged with the company to reimburse the owed taxes. An employee earning the maximum salary under the 13-week deferral program would owe around $1,612 in back taxes.

The Trump Administration has stated its desire to forgive the taxes, but that requires Congress to pass legislation. Such action is considered unlikely since the taxes are used to fund the Social Security program, and delaying payroll taxes does not help Americans who are unemployed as a result of the COVID-19 crisis.  

For details, contact Stuart Gosswein at stuartg@sema.org.

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