By Lee Allphin, Employer Advantage Founder and Chairman of the Board
Employer Advantage is sharing important information to guide our clients during the Coronavirus pandemic. Please contact us if you would like assistance with any of your Employee Administration and Compliance responsibilities: Info@EmployerAdvantage.com | 800.467.3909
On Saturday, the President issued three memoranda and one Executive Order dealing with payroll taxes, student loans, evictions, and benefits for lost wages. The only memorandum of significance to employers is the provision on payroll taxes. This directs the Secretary of the Treasury to implement a delay of certain employees’ obligations to pay certain Social Security taxes.
The payroll tax provision awaits Treasury guidance. According to the Executive Order, it applies to the period September 1, 2020, through December 31, 2020.
Here are Some of the Issues*
Memorandum Issue #1
Applies only to the 6.2% Social Security tax on employees. It does not apply to the employer’s obligation to pay a parallel 6.2% tax, and it does not apply to the Medicare insurance tax of 1.45%. (Press reports saying that it also applies to the Medicare tax are incorrect.) It also does not apply to the parallel taxes on self-employment income.
Memorandum Issue #2
Applies only to employees who generally earn less than $104,000 annually. Specifically, it applies to “any employee whose wages or compensation paid during any bi-weekly pay period are less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.”
Memorandum Issue #3
Provides only a delay of the tax obligation, not forgiveness. The obligation to pay the 6.2% is delayed with respect to wages paid from September 1, 2020 through December 31, 2020. No penalties or interest shall apply to those who use the delay. The Secretary of the Treasury has discretion to determine how long the delay is, up to one year. The Secretary will presumably address the length of the delay in upcoming implementation guidance.
The memorandum also directs the Secretary to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” Such forgiveness would require legislation, which has not yet occurred.
Memorandum Issue #4
Provides no relief with respect to employers’ withholding obligation. So if the delayed taxes are not forgiven and are not paid by the employee, the employer would appear to have liability for the payment of the taxes. Employers are not required to take advantage of the delay. This issue is not explicitly addressed, but it appears that the employer may decide to continue withholding an amount equal to the deferred taxes.
We know these orders raise far more questions than answers. It is important to keep in mind that Congress and the Trump Administration are still negotiating on a potential COVID-19 relief measure, and that a compromise bill could supersede the President’s actions. It is possible that someone may file a lawsuit against these actions or ask a federal judge to place a temporary restraining order against the President’s actions. It is also possible that the President could withdraw these orders as a bargaining chip during negotiations with legislators.
We are here to keep you informed as much as possible as we await clarifying guidance from the Treasury Department.
* Special thanks to Randy Hardock of Davis & Harman LLP for his help in interpreting and summarizing the provisions of the President’s memoranda.
See our other helpful blog…THE ESSENTIAL COVID-19 TOOLBOX FOR EMPLOYERS
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A New Path to HR Bliss – Trusted for more than 30 years, Employer Advantage frees you from the administrative and compliance burdens of having employees so you can focus on your business success. Versatile enough for companies of all sizes, our unique service combines comprehensive management of your employee administration and compliance with the latest software solutions, tailored to meet your individual needs and company culture. Our full-service management of HR, payroll, health and benefits, workplace safety, and more, enhances your profitability while reducing the costs and risks associated with employment law compliance. We provide your employees with top-notch assistance and benefits that help you increase productivity, save time and money, and attract and retain a talented workforce. And for small and mid-sized businesses, we bring you economy of scale with access to Fortune-500-level benefits, specialty assistance, and savings that would not be possible to attain on your own. Headquartered in the Midwest and serving more than 400 companies and 10,000 worksite employees throughout the country, Employer Advantage is an IRS-Certified Professional Employer Organization (PEO) (C-PEO). Experienced, certified, and trusted. www.EmployerAdvantage.com