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Presidential Memoranda – Budget & Spending Issued on: August 8, 2020

Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

I knew it was too good to be true that this weekend I would not be studying yet another new tax act, policy, rev.proc. or similar! This weekend the White House has issued a Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. Here is the link to the full memorandum as issued on August 8th.

The key points:

Purpose: Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster for those employees who earn less than $26,000 per tax quarter or $104,000 per year.

• Assuming a complete deferral of the tax imposed by 26 U.S.C. 3101(a), which is the 6.2 percent Social Security tax.  This equates to a deferral of a maximum of approximately $2,100 for the 4 month term of the deferral, or about $124/week per employee.
• What if an employee has more than one job? How does this effect those who are self-employed and pay this tax via quarterly estimates and account for it on their federal income tax return?
• These payroll tax funds are generally paid into their respective Social Security and Medicare trust funds.
• Sec 2 (b) amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.
• Sec 4  Tax Forgiveness:  The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.
• Deferring “kicks the can down the road” not sure I recommend doing this and I am concerned that this memorandum is a bit vague.  For instance is this for the employer and employee (both sides of FICA withholding)?
• What if we don’t defer and hold the funds in an escrow or side account for our employers and employees, are we opening ourselves (and our employees) up to a huge payment down the road.  On the other hand. are we leaving money on the table so that if we do not defer and there is a forgiveness were those who were more cautious penalized?

Thankfully this is still the beginning of August (posting on August 10th 2020) and we have time to see how this develops…

Hurry up and wait for guidance yet again!

In addition: Under the CARES Act, employers can already defer the deposit and payment of the employer’s portion of Social Security taxes. The deferral applies to deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020, with half being due on December 31, 2021, and the remainder due on December 31, 2022. The relief also applies to self-employed persons.  We have not advocated for this at all, as these are trust funds and the business owner is personally liable for payment of these funds, again not worth accumulating a huge debt for the future.

Here is a link to the Forbes article with discussion points, although I do want to point out that the benefits total per employee is for the “average employee”.

Again as always, we are here to help you through this most trying time, so please feel free to contact us to discuss this or any other concerns you have.