Payroll Tax Deferral Executive Order: What you need to know

Payroll Tax Deferral Executive Order

On August 8, 2020, President Trump signed an executive order that defers payroll tax obligations in light of the ongoing COVID-19 pandemic. 

Payroll Tax Deferral Executive Order: What You Need to Know

President Trump signed an Executive Order deferring certain payroll taxes in an effort to put more money directly in the pockets of American workers. This payroll tax deferral Executive Order goes into effect on September 1, 2020. Please see below for a brief and easy breakdown of all the details.

 

What does it mean?

The Executive Order puts in place an employee payroll tax deferral for the employee-paid FICA taxes. As of the order’s date, the employee will still be liable for the deferred taxes at a later date. President Trump has stated that the Secretary of the Treasury will explore avenues to eliminate the obligation to pay the deferred taxes back. 

 

What taxes are included in the payroll tax deferral?

The Executive Order does not clearly state what taxes are deferred, but the understanding is that it is the FICA employee portion. 

The FICA tax is Social Security and Medicare taxes combined. An employee’s FICA taxes are 7.65% of their gross wages. The breakdown is 6.2% for Social Security and 1.45% for Medicare. 

This would give someone who was making $2,000 every two weeks the equivalent of $153 back in their pocket every two weeks. 

There is no mention of employer taxes since there is already an option for employers to defer this portion of their payroll tax (employers will owe this money at a future date). 

 

Who is eligible?

The deferral shall be made available for any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount concerning other pay periods.

 

When does the payroll tax deferral go into effect?

September 1, 2020, through December 31, 2020.

Please keep in mind; this is a deferral of taxes. These taxes could be due. There is a clause in the Executive Order that states:

“The Secretary of the Treasury shall explore avenues, including legislation, eliminate the obligation to pay the taxes deferred under the implementation of this memorandum.

Have additional questions or need guidance regarding how to apply the payroll tax deferral? Contact us and we will be happy to help!

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