Last week, the President signed several executive memoranda related to the economic conditions caused by the COVID-19 pandemic. Among them was a memorandum that defers the due date of the employee portion of federal payroll taxes. Employers can defer payment of that employee portion for workers that earn less than $4,000 on a biweekly basis.
The Department of Treasury is expected to issue guidance to employers on how to handle this tax deferral as many details of its implementation are unclear. Currently, an employer is not required to delay the relevant tax payments, but may do so if it chooses.
Importantly, this memorandum does not relieve employees of the tax liability. It only defers it. If an employer does choose to stop deducting the employee’s portion of the taxes for the remainder of the year, it may just mean that the employee is left with a large tax bill at tax time. Trump did mention the possibility of the of the tax being forgiven if re-elected, however this would require an act of Congress and employers should not expect this to happen.
One potential option is for employers to continue deducting the taxes but hold the amounts in escrow. The withholdings could then be returned to the employee should the tax liability be forgiven by Congress. Another option for employers would be to continue to have their employees pay the tax and have the Federal government refund any overpayed taxes to their employees at tax-time. Again though, it is important to see the Department of Treasury’s guidance to ensure that course of action will not run afoul of the law.
Adding to the uncertainty is the fact that there are questions about the constitutionality of the policy itself. Employers should continue to monitor developments on this tax deferment to ensure they are complying with the law.
If you have any questions, please contact Alina Nadir here or at 585-258-2805.
You can view more COVID-19-related posts in our COVID-19 Resource Area here.