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Payroll tax exec order awaits Treasury details

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Pillers in building President Donald Trump issued an executive order on Aug. 8 instructing Treasury to defer certain employee payroll tax payments from September through the end of the year, but the order raises significant unanswered questions on the potential implementation.

The executive action was one of four performed by the president after negotiations with congressional Democrats on a fourth stimulus bill broke down. It instructs the Secretary of the Treasury to issue guidance deferring the withholding, deposit and payment of the 6.2% employee share of Social Security tax from Sept. 1, 2020, through Dec. 31, 2020, for any employee biweekly pay period in which the employee’s wages or compensation is less than $4,000. The order invokes Treasury’s authority under Section 7508A, which generally provides broad authority for the IRS to postpone filing and payment deadlines.

The order itself does not defer payroll taxes. Treasury action will be needed to effectuate the order’s instructions. The order also raises significant questions regarding potential implementation that will require guidance. Perhaps most significantly, it calls only for a deferral of payroll taxes, which would have to be paid at the end of the deferral period. It is unclear how or when these taxes would be due and whether employees or employers would be responsible for making payments.

The executive order states that Treasury is exploring avenues for forgiveness but acknowledges this may require legislation. President Trump himself has pledged to ensure the tax is forgiven but faces an election in November. He said he believes Democrats will be also pressured into forgiving the tax, but the legislative process is far from certain. A payroll tax holiday has proven unpopular in both parties, with Senate Republicans dismissing it early in stimulus negotiations.

Without the assurance of forgiveness, it is unclear if the withholding deferral will be mandatory or if either the employer or employee or both will have the option to continue normal withholding. Voluntary withholding changes would pose some administrative hurdles, as will the operation of the $4,000-pay threshold. Employers and payroll service providers will need significant guidance, and implementing the process by Sept. 1 will be challenging.

It’s possible that Democrats and Republicans will return to the negotiating table to try to find a legislative solution before Treasury implements the executive order. Employers should continue to monitor the legislative process and await Treasury guidance.

For more information, contact:

Dustin Stamper
Managing Director
Washington National Tax Office
Grant Thornton LLP
T +1 202 861 4144

Jeff Martin
Partner
Washington National Tax Office
Grant Thornton LLP
T +1 202 521 1526

Omair Taher
Manager
Washington National Tax Office
Grant Thornton LLP
T +1 202 861 4143


Keith Mong
Managing Director
Washington National Tax Office
Grant Thornton LLP
T +1 202 521 1554

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