By Chuck White, Vice President of Regulatory Affairs
President Donald Trump has issued an Executive Order intended to financially assist workers as a result of the 2019 novel coronavirus (COVID-19). The memorandum directs the Secretary of the Treasury to defer certain payroll tax obligations with respect to the American workers most in need. This order has been interpreted to be voluntary, although federal workers have been mandated to comply. If you have any questions as to the applicability of this Executive Order to your business, please consult your financial or accounting professionals for assistance.
A deferral of withholding, deposit and payment of the employee portion of Social Security Tax on wages or compensation paid during the period of September 1, 2020, through December 31, 2020, shall be made available for any employee whose wages or compensation payable during any bi-weekly pay period generally is less than $4,000. The wages shall be considered in an equivalent amount when other pay periods are used, for example, adjust weekly gross pay to bi-weekly amounts to determine eligibility.
Amounts deferred shall be deferred without any penalties, interest, additional amount or addition to the tax. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of the memorandum.
Additional guidance to implement this memorandum has recently been issued. The guidance defines Affected Taxpayers as the employer responsible for withholding and remitting taxes. For Affected Taxpayers, the due date for the withholding and payment of the tax (collectively Applicable Taxes) on Applicable Wages is postponed until the period beginning on January 1, 2021, and ending on April 30, 2021.
The deposit obligation for employee social security tax does not arise until the tax is withheld. Accordingly, by postponing the time for withholding the employee social security tax, the deposit obligation is delayed by operation of the regulations. Thus, the notice does not separately postpone the deposit obligation.
The guidance further confirms that Applicable Wages means wages paid to an employee on a pay date during the period beginning on September 1, 2020, and ending on December 31, 2020, but only if the amount of such wages or compensation paid for a bi-weekly pay period is less than $4,000, or the equivalent threshold amount with respect to other pay periods. The determination of Applicable Wages is made on a pay period-by-pay period basis. Employees with varying pay amounts must be checked regularly to ensure their pay is below the threshold making them eligible for deferral.
An Affected Taxpayer must withhold and pay the total Applicable Taxes that the Affected Taxpayer deferred under this notice ratably from wages and compensation paid between January 1, 2021, and April 30, 2021, or interest, penalties and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid Applicable Taxes. If necessary, the Affected Taxpayer may make arrangements to otherwise collect the total Applicable Taxes from the employee.
Vice President of Regulatory Affairs , PHCC-National Association