August 10th, 2020

Executive Order Suspends Collection of Certain Employee Payroll Taxes

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Author: David S. De Jong

Payroll tax

President Trump issued an Executive Order on August 8, 2020, purporting to postpone the withholding, deposit and payment of the employee portion of Social Security and Medicare taxes from September 1, 2020 until after yearend in the case of employees whose gross pay is generally less than $4,000 biweekly or its equivalent.

This directive, issued with additional orders extending certain unemployment benefits, suspending payments on certain student loans and suspending certain foreclosures and evictions, has uncertainties including the required repayment date (if not forgiven, which requires Congressional approval) and the effect of bonuses on the $104,000 per annum compensation cap.

Concerning to employers is the lack of protection from employer liability and ensuing Trust Fund Recovery Penalty exposure of responsible individuals if the deferred taxes go unforgiven and cannot be collected from employees due to departure, hardship or other reasons.

Before employers must act on the Executive Order, IRS guidance can be expected. Additionally, a challenge is likely to the President’s unilateral authority to order a payment “holiday.”

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