Executive Order Payroll Tax Deferral

What Does the Executive Order Deferring Payroll Tax Mean For You?


President Trump recently released a memorandum on deferring the withholding, deposit and payment of the employee’s share of the 6.2% social security tax on wages paid during the period of September 1, 2020 through December 31, 2020. This deferral only applies to employees with bi-weekly pre-tax income of less than $4,000. This approximates an annual salary of $104,000.

Treasury Secretary Mnuchin recently stated that participation in this program is optional for an employer. Should you participate? Here are a few concerns and considerations to help you make that decision while additional details are released.

  • Many question the legal underpinnings of this memorandum and whether or not the President has the authority to order a deferral of this tax without Congressional support.
  • This is a deferral, not an elimination of the tax. Are you really doing your employees a favor by having them defer taxes now to repay a few months later? Will they have the funds available to repay this obligation?
  • Am I missing out on a possible real benefit for my employees? Treasury Secretary Mnuchin stated that when the President is re-elected he will push Congress to forgive these deferred taxes. Will the President be re-elected? If he is, will he have the ability to push forgiveness through, considering that this idea has already been rejected by both Republicans and Democrats?
  • Many questions are unanswered. For instance, what happens if an employee leaves before paying back their deferred payroll taxes? Will the employer be held responsible to pay?

In addition to the lack of clarity around the program as indicated above, it has been noted by commentators that administering this program may pose a challenge for employers. Also, keep in mind that no guidance has been released yet on how to implement it.

Disclaimer: Please note this is based on the information that is currently available and is subject to change. 

If you are considering participating in the program, contact your Schmidt Westergard professional to discuss. Look for additional updates as more guidance is released.

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