What does the President’s recent memorandum on payroll tax deferment mean for me?

On Saturday, President Trump issued a “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.”

Well, we’re waiting to see if he in fact has the authority to do this, and whether legislation will provide a clean-up, and what additional guidance the Treasury department will issue to implement it, here are some initial thoughts.

If it sticks, either because of a judicial determination of presidential authority or due to legislative endorsement, it would only apply to workers who make less than $2,000.00 per week on a pre-tax basis. The deferral would start on September 1, 2020, and would end December 31, 2020.

Not only do we need legislation to clarify whether this rule will actually be effective if the President lacks the legal authority to suspend taxes without Congressional action – we also need to clarify whether the payroll taxes will be forgiven or must be repaid. If they are not forgiven, then query whether you would even want to be subject to this as a worker, since you’d just get a bigger tax bill next year; though, the order as announced, would waive penalties and interest. Since most W-2 earners are used to paying their share of the payroll taxes as they go, it’s hard to imagine how many wage earners would be accustomed to setting aside the money now to pay those taxes in 2021. Of course, by then it will be after the election and it could be the problem of another administration. Or Congress would be positioned as the scapegoat for that higher tax bill.

How much is that tax worth?

The President’s memorandum references tax imposed by 26 U.S.C. 3101(a) [which is the employee’s 6.2% share toward social security tax]]and section 3201 [which is and additional 1.45%]] for a total of 7.65% paid by the employee – assuming they are not subject to to the extra “Obamacare” payroll tax of an additional 0.9% for high earners – who would not be subject to this payroll tax holiday anyway]. So, at a maximum of $2,000.00 in wages per week, the payroll tax holiday could be worth up to $153 a week.

What about the employer’s share of payroll taxes – the other 7.65% of payroll taxes that employers pay out of their pockets rather than deducting it from their employees’ pay? The order is silent on that, meaning that employers must continue to collect and remit that portion, based on this lawyer’s review of the order.

Can an employee or employer opt out of this?
The order does not say. It invites the Treasury Secretary to “explore avenues, including legislation” and to “issue guidance to implement” the memo.

Take-Aways:

* Let’s see what the next 2 weeks bring. At a minimum, we should see implementing regulations from the Treasury, even if Congress doesn’t act.

* What high wage earners can you eliminate from consideration?

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Second- what about my student loans? Didn’t the President give me another extension on restarting my payments?

On August 8, the President also issued a Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic. Check it out here.

Before you assume you can make other plans for those payment funds, I’d check to see if your loans are owned by the Department of Education by calling or logging on to your servicer. If they are privately owned loans, they are likely not affected by this order. Nor were they likely affected by the CARES act extension of the President’s original 60 day forbearance order, giving you until September 30th.

All in all, not much to write home about at this point, but here’s hoping that these efforts will spur Congress to take action on the next round of relief packages.

Meanwhile, how’s your PPP forgiveness application coming?