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Guidance on Executive Order Regarding Social Security Taxes

12 August 2020

Into the void created by Congress’ lack of progress on the next tranche of coronavirus economic relief, President Trump marched Saturday, August 8, 2020, with a slew of executive orders.

One of these encourages employers to defer withholding of employees’ Social Security contributions, up to annualized wages of $104,000, beginning September 1, 2020 and ending December 31, 2020.

However, this executive order is short on details and guidance, leaving employers wary. Neither the U.S. Treasury Department (Treasury) nor the Internal Revenue Service (IRS) has stepped in, both agencies declining to comment on Monday, August 10, 2020, about either timing or content of any new rules geared at implementing and / or clarifying President Trump’s executive order.

Here are some of the potential pitfalls:

  1. The tax liability will fall principally upon employers to make the payments of deferred withholdings once they become due. And there is no guidance as yet as to when that due date would be.

  2. There is no indication as to how the IRS would seek to recover funds – from employees through individual income tax forms or via extra withholdings, or from employers through audits. Remember who has the deeper pockets – the employers.

  3. While the President has said he would push for forgiveness of liability on these deferred payments, the matter is in the hands of Congress, not his own. While he has the authority to defer taxes, the President’s office cannot forgive tax payments. Congress holds the nation’s purse strings under Constitutional law.

  4. If an employer stops the withholding as of September 1, 2020, and an employee leaves for another company, would payment of the deferred withholdings be considered wages, leaving the employer responsible for additional payroll taxes on these withholdings?

  5. Payroll processors will have to scramble to implement technological “fixes” to accommodate the deferrals – and they, too, must wait for guidance.

Frankly, while it may be tempting to take whatever potential relief is offered, at this point we advise employers NOT to defer employees’ Social Security withholdings. When guidance, or Congressional action, is forthcoming, that position could change, but for now, we simply cannot recommend it.

Stay tuned – we will provide updates as they arise.

If you have questions on deferral of employees’ Social Security withholdings, please click here to email us directly – we are here to help.

Until next Wednesday –

Peace,

Eric

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