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Presidential Memorandum for Deferring Payroll Tax Obligations


Rödl & Partner Tax Matters Vol 2020 – 10, published August 18, 2020

On August 8, 2020, President Trump signed a Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, which directs the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of employee Social Security taxes on wages or compensation paid during the period of September 1, 2020, through December 31, 2020.

Employees pay a 6.2% Social Security tax on wages up to an annual limit, which is $137,700 in 2020. The deferral of Social Security tax is available to employees with wages under $4,000 bi-weekly, or the equivalent amount with respect to other pay periods. Any amounts deferred are deferred without any penalties, interest, additional amount, or addition to the tax.

The Executive Order for deferring taxes is voluntary, so employers are not obligated to implement it and some employers may not want to offer the deferral to their employees. A key consideration in deciding whether to implement the deferral is that absent action from Congress, the deferred amount will need to be repaid in 2021.  Under current law, employers are liable for employment taxes whether or not they withhold such taxes from employees. Pending further guidance, it is not clear whether the employer or the employee would be liable for repayment

Taxpayers, their advisors and payroll tax providers are awaiting guidance from the Department of Treasury and the IRS regarding the implementation of the voluntary deferral of Employee Social Security tax. There are a number of issues to be addressed, including:

  • Will employers remain liable for the deferred employment taxes,
  • Is the option to defer exercisable by the employer, the employee, or both,
  • If Congress does not enact legislation to forgive the amounts deferred, who will be primarily liable for repayment, and what will be the mechanism for collecting the tax,
  • How the $4,000 biweekly limit or annual $104,000 limit will function,
  • How prior payrolls should be adjusted if someone previously under the wage threshold later exceeds the $100,000 limit,
  • If an employer only implements the deferral after 9/1/2020, whether the employer is permitted or required to adjust for taxes withheld retroactive to 9/1/2020

Given the uncertainties, we recommend that employers await further guidance prior to implementing the deferral. If there are any questions, please contact your local Rödl & Partner representative.

This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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Copyright © August 2020 Rödl Langford de Kock LP
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