Donna Bordeaux of Calculated Moves explains a presidential memorandum to defer employees' 6.2% Social Security payroll tax for pay periods between September 1 and December 31, 2020, for employees earning less than $4,000 biweekly. She clarifies that the memo refers to the employee share (not the employer match), notes that the President cannot unilaterally forgive the tax without Congress, and lists many operational questions (mandatory vs optional, repayment mechanics, handling separated employees) awaiting Treasury guidance.
Chapters
Hi, I'm Donna Bordeaux with Calculated Moves. I want to talk with you about a recent change that our president has issued in a memorandum deferring payroll taxes. Now this has a lot of open ended questions. We should be used to this by now. Every new thing that gets issued always comes with a bunch of loaded questions that we don't know the answer to lately. So the President said that he is deferring payroll taxes on all payroll between September 1 and December 31 of this year for anybody who makes less than $4,000 in a BI weekly period. Now let me tell you what that means, sort of, and then I'll tell you what open questions we have. First off, the payroll taxes that he's referring to is the 6.2% Social Security tax that is assessed on employees pay, not the employer share. Employers also match it, but he's referring specifically to the employee share of that 6.2%. So in effect, the deferral has said that if you have a payroll running in September, you as an employee will not have that 6.2% Social Security tax withheld. So if it's not withheld, the employer still does have to match it. Okay. That would be submitted with payroll tax returns. There are a lot of open ended questions for the employer's sake. We don't know if this is mandatory or an option that an employee elects or an employer elects. Those are all open ended questions. We're waiting for answers. The President's memo was very short and sweet in this. And he does not have the power to cut the payroll tax without congressional assistance. So his memorandum was directing the treasury to work to defer the tax with the suggestion that the treasury work to get this forgiven so that it doesn't have to be paid back. But that is not part of anything yet. So at this very moment, a deferral means that it won't be deducted from September 1st to December 31st, and that would mean that an employee has to pay it next January. How that will all work is a big question and I don't think we'll know the answer to that until after the election. I think a lot is going to be hinged on the election and determining whose problem that is to deal with. So for right now, we don't have a whole lot of information. Payroll companies are scrambling to try to get some information from the treasury about how this should work, whether people can elect out of it, whether an employer can elect out of it, what happens if an employee takes the deferral now but is no longer employed when that tax has to be paid back, does it have to be paid back? Does somebody else have to pay it? Does the employee pay it? Does the employer pay it? Who knows what all these questions mean at this point? So stay tuned. We're going to be watching this with bated breath to make sure that when the treasury issues their first round of advice, which as we know from past efforts is probably subject to change after they hear the response from everyone else, we'll keep you posted. So right now as of September 1st, something probably will happen on payroll, but we don't know what yet. We'll keep you posted as soon as we hear, but you can keep your eye on the news as well and see if you see what happens and compare that. If you have any questions, of course, we are here to help you. Thank you very much. I'm Donna Bordeaux@calculatedmoves.com.
