Payroll Tax Cuts: What We Know Now

The Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster memorandum was issued by the White House on August 8, 2020. The memorandum allows for the deferral of employee side payroll taxes from September 1, 2020 through December 31, 2020 for employees making less than $4,000 bi-weekly, calculated on a pre-tax basis. The memorandum also states that the amounts, "shall be deferred without any penalties, interest, additional amount, or addition to the tax." The Secretary of the Treasury is directed to issue guidance on the implementation of the memorandum.

The memorandum has presented many questions regarding the implementation of the executive order. The U.S. Chamber of Commerce and over 30 trade associations penned a letter to Congress and the U.S. Department of Treasury noting some of the challenges. Business leaders are reluctant to decide on behalf of employees to implement the deferral knowing that this will result in their employees incurring a significant tax bill in 2021 should Congress not act to forgive the deferred tax. Allowing employees to individually make this decision is implausible due to software constraints.

The AICPA wrote a letter to David Kautter, Assistant Treasury Secretary, and Charles Rettig, IRS Commissioner, on August 12th requesting additional guidance. Among the areas of noted concern are the executive order's implicit language that, "…the deferral will be made available with respect to any employee." Does this mean that employees are to be allowed to make the choice? How does the deferral work for employees who work for multiple employers? What is the repayment date? What is the mechanism for repayment to be made?

Steve Mnuchin, the Secretary of the Treasury, has stated that the payroll tax deferral will not be mandatory for employers to implement.

Additional guidance will be necessary prior to implementing the executive order. Please stay tuned for more guidance as it becomes available.