Update related to the Deferral of Employee-Side Payroll Taxes

Earlier this month, President Trump signed a Memorandum (available here) related to the deferral of the employee portion of social security taxes from September 1, 2020 to December 31, 2020. The Memorandum directs the Secretary of Treasury to issue guidance to explain how all this is supposed to happen.

As of August 28, 2020, no such guidance has been issued, which leaves many open questions as the September 1st deadline approaches. Recent news suggests that the delay is due to the fact that the White House wants to ensure that employees are not stuck with the bill come 2021, and pass responsibility for the deferred payroll taxes to employers instead. (See discussion here.) Needless to say, it is unclear whether the IRS/Treasury can do this and for these deferrals to be forgiven, it will likely take action from Congress to do so which many believe is unlikely.

All this uncertainty leaves employers in a difficult position. Here are some thoughts on a few of these questions:

  1. Is the deferral mandatory for employees? This is unclear from the language of the Memorandum. Most experts are taking the position that employees do not need to do the deferral; thereby making it optional. However, if the White House gets its way (and all costs are passed back to employers), then we can safely assume employees will avail themselves of this option anyway. 
  2. Are employers required to implement the deferral and not withhold the employee-side payroll taxes beginning September 1st? Without further guidance, the Memorandum does not require employers to implement the deferral. Arguably, employers still remain legally responsible for withholding payroll taxes per IRS regulations. Additionally, most third-party payroll processors do not have a way to process the deferral by the September 1st start date. 
  3. What should I do if I elect to continue withholding as usual, but one of my employees requests the deferral? At least until further guidance is issued, it is recommended to deny any employee’s request for deferral and continue withholding as usual. Even if/when you are pushed by employees, you can respond by noting that the company is awaiting further guidance from the IRS and/or Treasury Department on this matter. 

OUR OVERALL RECOMMENDATION – Until clarifying guidance is provided, the best course of action for employers is to continue withholding as usual.