Early in August, President Trump released his memo “Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.” Learn what you need to know as an employer with our 10 key takeaways below.
#10 Taxes from September 1 through December 31 are eligible.
The memo was released August 8, and you can begin payroll tax cuts September 1. The benefit ends December 31, 2020 at the end of the quarter.
#9 Implementing Trump's payroll tax cuts is optional.
This isn’t a law, just a memorandum. In other words, an employer can choose whether or not to participate. “This memorandum is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person,” the memo reads.
Non-participants won't be considered out of compliance for opting out of the program. We recommend discussing this matter with your organization and your employees.
#8 Employees don't have to pay their typical 6.2 percent Social Security tax.
According to the memo, employees do not have to pay Social Security (SS) taxes. Instead, they retain the 6.2 percent in their total paycheck.
#7 Employees on your payroll earning no more than $4,000.00 every 2 weeks qualify.
That's up to $4,000.00 bi-weekly before taxes or, "the equivalent amount with respect to other pay periods," or anyone on your payroll earning up to $104,000.00 yearly salary. Employers must continue to withhold for employees earning above this threshold.
For example, for an employee earning $4,000.00 biweekly, the 6.2 percent is $248.00. Your employee could have an extra $537.00 per month under the payroll tax cut.
#6 The $137,700.00 Social Security taxable wage base still applies.
Anyone earning more than $4,000 and up to $5,296.15 bi-weekly paycheck is still required to pay their 6.2 percent Security Security tax. In other words, employees earning over $104,000 and up to $137,700 per year do not qualify for the tax cut.
#5 Social Security and unemployment beneficiaries do not benefit.
POTUS’ memo only benefits Americans currently on the payroll of an employer. Individuals who receive Social Security or unemployment benefits do not qualify for Trump’s payroll tax cuts.
#4 Employers still have to pay their portion of the Social Security tax.
While employees get the 6.2 percent SS tax back in their pocket, the memo does not mention deferring the employer portion. Employers still have to pay their 6.2 percent.
#3 Consider your payroll system's scope of capabilities before deciding to participate.
Consider the amount of time (and therefore money) it will take for your payroll system to implement Trump's payroll tax cuts. Is it prudent in the long run?
Create a custom report in your payroll software for a list of employees who make $4,000 or less on a bi-weekly basis before taxes, set date parameters, and estimate the cost-benefit. Present your research to your organization and employees so you can all make the decision together.
If your business decides to participate, set an alert in your payroll system to remove custom date parameters. That way you're prepared to stay in compliance with federal tax laws for Q1 of 2021.
#2 The taxes are still owed.
President Trump's memorandum strictly defers payment, not eliminates payment. The payroll taxes must be paid after Jan. 1, 2021.
#1 Expect supplemental guidance on tax forgiveness.
Expect more information to be disseminated by the Secretary of the Treasury. “The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” Further guidance on this matter will provide clarification.
Subscribe to our HR and Tax Alerts to receive a summary of the Secretary of the Treasury's supplemental guidance on Trump’s 2020 Payroll Tax Cut Memo after its release.