August 10, 2020

Executive Order Creates Payroll Tax Opportunity

Congress has been busy over the last few weeks working to agree on new legislation to extend COVID-19 relief to businesses and individuals. There are two competing pieces of legislation which include the HEROES Act passed by the House and the HEALS Act passed by the Senate. While each address a number of programs originally passed as part of the CARES Act, there are also important differences. Issues such as the number of enhanced unemployment benefits, when these benefits would expire, eviction protections, school funding for re-opening, and liability protection for companies have prevented an agreement from being reached. Unfortunately, negotiations have not yet yielded fruit leaving many concerned about what will happen next.  It is against this backdrop that President Trump signed four Executive Orders designed to provide relief to affected groups. In summary, they provide federal unemployment relief, prompt an eviction ban review, defer federal student loan payments through 2020, and delays payroll tax collection for qualifying individuals. To help clients, prospects, and others, Wilson Lewis has provided a summary of the payroll tax deferral below.

Employee Social Security Tax Deferral

In the Executive Order issued on August 8, 2020, President Trump directed the Treasury to provide guidelines for the deferral of the withholding, deposit, and payment of the old age, survivor, and disability insurance tax (OASDI) imposed on employees. Typically, a W-2 employee is taxed at 6.2% of earnings for OASDI, or social security tax, and employers are required to match the payment. Since the CARES Act already deferred the employer-side taxes, the Order applies only to individuals. Note the deferral period begins on September 1, 2020, and extends through December 31, 2020.

Important Details

• Income Exclusions – The Order mandates that only those who earn generally less than $4,000, calculated on a pre-tax basis, on a bi-weekly pay period are eligible. This means that only those individuals who make (pre-tax) $2,000 per week, $4,333.33 semi-monthly, or $8666.67 per month are eligible to participate. In the event, an employee’s pay exceeds the limit at any point the amount of OASDI must be withheld and paid by the employer.
• Penalties – The Order also prohibits the assessment of penalties, interest, or additional taxes on deferred payments by eligible individuals.
• Tax Forgiveness – There is also mention of the opportunity for tax forgiveness, but no specific rules or requirements were issued. The Executive Order directs the Secretary of Treasury to explore all avenues, including legislation, to eliminate the obligation to pay deferred taxes at the end of the program period.

Contact Us

It is unclear whether the Executive Orders will be challenged, incorporated into relief legislation, or implemented according to the conditions outlined above. However, it does provide an important insight into the changes which may be coming from Washington in the coming weeks. If you have questions about the information outlined above or need assistance with another tax issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.