What the Executive Orders Mean for Your Business: Payroll Tax Deferral & More

The information in this article is current as of August 17, 2020, 12:45 p.m. EST.

As the coronavirus continues to rock businesses’ and individuals’ worlds nationwide, the government is scrambling to find ways to provide additional relief. To help with the negative effects of the coronavirus, the president issued multiple executive orders on August 8, 2020, with one relating to a payroll tax deferral. Read on to learn what the executive orders entail and how they can impact your business and employees.

COVID-19 payroll tax deferral executive order & more

On August 8, President Trump issued four executive orders. The orders provide relief in the forms of:

Payroll tax deferral Unemployment aid expansion Student loan payment deferral Protection from evictions

Check out the details of each executive order below. And, keep in mind that they are not completely set in stone (which we will get to later).

Payroll tax deferral

The first executive order issued has to do with deferring the employee portion of payroll taxes.

As an employer, you’re responsible for withholding certain payroll taxes, like Social Security tax (part of FICA tax), from employee wages.

As a brief recap, the employee portion of Social Security is 6.2%. This means employers must withhold 6.2% from employee wages for Social Security tax until the employee reaches the Social Security wage base. Social Security tax is one part of FICA tax, with the other part being 1.45% for Medicare tax (which you also must withhold from employee wages). As an employer, you have to pay a matching 6.2% for Social Security tax and 1.45% for Medicare tax.

According to the White House Memorandum, the potential payroll tax deferral under the executive order would allow employers to stop withholding only Social Security tax (6.2%) from employee wages from September 1, 2020 – December 31, 2020. The payroll tax deferral does not include Medicare taxes.

The deferral would allow employers to delay employee Social Security tax payments without any penalties or interest until the end of the year.

This employee payroll tax deferral would mimic a tax cut because workers would wind up with larger paychecks during the time frame where the employee portion of Social Security tax is not withheld. But because it’s a deferral and not an exemption, the payroll taxes would still be due at a later date. Currently, there is no word on how the process of paying back the deferred payroll taxes would work for employees and employers. However, there is speculation that either employers would be responsible for collecting the owed payroll taxes from employees or employees would owe them when they file their 2020 income tax return.

The payroll tax deferral only applies to employees with biweekly pre-tax income of less than $4,000. Employees earning under $104,000 annually (roughly $4,000 every two weeks) would be able to take advantage of the payroll tax deferral. But again, these employees would need to pay back the Social Security taxes.

Depending on what legislation Congress passes and the November election, there is a chance that the deferred Social Security taxes could be forgiven.

Although there’s not much information about how the process will work, Treasury Secretary Steven Mnuchin said the payroll tax deferral would not be mandatory for employers to implement. And, employees can opt out of having their

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