On Saturday, August 8th, President Trump signed four executive orders directed at extending economic relief after elected officials were unable to reach an agreement on continued COVID-19 stimulus.
The orders included extending unemployment benefits, a federal moratorium on evictions, the suspension of federal student loan payments and a payroll tax holiday.
Of the orders that were signed, the payroll tax holiday has the most far-reaching impact to businesses in the near future. The order provides a deferral of payroll taxes starting September 1st through December 31st. Under this order, this would mean deferring the Social Security tax imposed on employee wages up to certain thresholds, as well as the Medicare tax.
The order states “… today I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.”
It is good to remember that under the CARES Act, employers are already allowed to defer the employer-portion of Social Security taxes for the remainder of 2020 with 50% balances due at the end of 2021 and 2022. This order appears to extend to the deferral of the employee-portion of Social Security taxes and Medicare taxes, though it is important to keep in mind these taxes will still be due at the end of the year.
Tax experts generally believe that Congress wields the authority to stop tax collections, not the President. However, because the payroll tax will still be due at a later time (free of interest and penalties), the President does seem to have the authority to postpone certain tax collections. However, he does not have the power to eliminate such taxes.
In any case, the best course of action will be to stay in close contact with your payroll provider or BPM tax advisor and look for ways to take advantage of tax savings without overly cumbersome administrative efforts. If you have tax questions, please reach out to BPM Partner Andre Shevchuck, or BPM Partner Jill Pappenheimer, if you have payroll questions.