By: Thomas Alvarez
President Trump’s Executive Memorandum signed August 8, 2020 deferring the employee portion of social security taxes, for those employees earning wages less than $4,000 during a biweekly pay period (less than approximately $104,000 annually), went into effect September 1, 2020 and sunsets December 31, 2020. Specifically, the Memorandum directs the Department of Treasury to allow the deferral.
Importantly, since this is a deferral rather than an outright removal of the withholding obligation, employees must repay the deferred amount from their paychecks in the first quarter of 2021. President Trump has indicated that he would seek to forgive the amounts deferred at a later date if re-elected.
Although the Memorandum does not specifically state that the deferral is optional, Treasury Secretary Steven Mnuchin did confirm that the deferral is indeed optional. This conclusion is further supported by recent Treasury and IRS guidance in the form of Notice 2020-65 issued on August 28, 2020. Notice 2020-65 refers to a postponement of the normal due date for the employee portion of social security taxes which implies that the deferment is discretionary.
The eligible wages are measured biweekly, and therefore, some biweekly periods may be over $4,000 and some under $4,000 requiring employers to monitor biweekly wage fluctuations. The employer is responsible for implementing the Memorandum, and this commences with the decision of whether or not to defer wages for eligible employees. Consequently, the employer will be required to increase withholding in the first quarter of 2021 if a decision is made to implement the deferral.
Employers should initiate communications with affected employees to inform them of how the employer intends to address the Executive Memorandum.
We recommend that employers consult with their payroll provider to discuss implementation.
Please contact BGBC Partners if you have specific questions regarding this Executive Memorandum.