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U.S. Treasury Releases Payroll Tax Deferral Guidelines

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Sept. 8, 2020—President Trump issued an executive order on Aug. 8 to establish a voluntary deferral of workers’ federal payroll taxes Sept. 1 through Dec. 31. The U.S. Treasury Department issued a three-page guidance document on Aug. 28 on how the program would work, as outlined by a SEMA press release.

The release says the Treasury Department is giving participating companies from Jan. 1 to April 30, 2021, to remit the deferred taxes, implying that companies may give workers the option of double withholding of their Social Security tax during the first quarter of 2021, as one way to remit the owed taxes. The payroll tax deferral program applies to individuals with wages below a bi-weekly threshold of $4,000, which is an annual salary of $104,000 per year or less.

The deferral only applies to the 6.2 percent Social Security tax, and not the 1.45 percent Medicare tax. However, the deferral policy does not address unknowns such as getting uncollected taxes from workers who quit or were laid-off, or regarding companies that went out of business, the SEMA release says.

The payroll tax deferral program has received an indifferent response from the business community and Congress, according to the SEMA release. Since the payroll tax is simply being deferred, not forgiven, many companies are concerned about employees understanding the distinction, or being able to pay the future obligation. Businesses would be required to remit the deferred taxes after Jan. 1, even if an employee has not arranged with the company to do so. For example, an employee earning the maximum salary under the 13-week deferral program would need to pay $1,612 in Social Security taxes come 2021.

The Trump Administration has stated its desire to forgive the taxes, but that would requires Congress to pass legislation. The release suggests that action is considered unlikely since the taxes are used to fund the Social Security program.

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