President Trump Issues Presidential Memorandum to Defer Employee Social Security Taxes

NOTICE – This article has not been updated to reflect new legislation passed by Congress on December 21, 2020.  That legislation could significantly affect the content of this article.  We plan to update this article during January 2021 to reflect the impact of the new legislation.

August 20, 2020

Kaylyn Varnum, CPA

On August 8, 2020, President Trump signed a Presidential Memorandum (“the Memorandum”) to defer the employee’s portion of Social Security taxes for many employees. The Memorandum directs Treasury Secretary Mnuchin to defer withholding, deposit, and payment of the employee portion of Social Security taxes on wages or compensation paid from September 1, 2020 through December 31, 2020.

In order to be eligible to take advantage of the deferral, the employee’s wages or compensation payable during any biweekly pay period must generally be less than $4,000, calculated on a pretax basis (or the equivalent amount with respect to other pay periods). Amounts will be deferred without any penalties, interest, additional amount, or addition to the tax.

The Memorandum instructs Secretary Mnuchin to provide guidance to implement the Memorandum – it appears that the deferral is not available until the Secretary issues guidance to implement the order. Additionally, the Memorandum instructs Secretary Mnuchin to explore avenues, including legislation, to eliminate the obligation to pay the deferred taxes.

Many things are unclear with respect to this payroll tax deferral. For example, is the payroll tax deferral optional or mandatory? (Note – Secretary Mnuchin has indicated informally to the media that participation by employers in the deferral will not be mandatory.) If forgiveness legislation is not enacted, must the employer collect the deferred taxes from the employees and remit the payments or will that be done on the employee’s individual Form 1040? Given the multitude of questions regarding this deferral, waiting for clarifying guidance before making any changes seems prudent.

We expect further guidance to be issued by the IRS in connection with this matter and will provide updates as additional information is available.

As a reminder, Section 2302 of the CARES Act allows employers to defer their share of Social Security tax through the end of 2020.  Please visit our COVID-19: Legal and Regulatory Developments for Nonprofits webpage for the latest version of our summary of the key provisions of the CARES Act relevant to nonprofit organizations.

BMWL Can Help

BMWL’s COVID-19 Task Force is ready, willing, and able to help our clients navigate the deferral of employee or employer social security taxes. Nonprofit organizations that would like the assistance of our Task Force in addressing these matters should contact us at [email protected].

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