Executive Order on Employee Payroll Taxes: Should Employers Take Action?

Hold Tight, Additional Guidance is Expected

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View the update from August 31, 2020 here.

On August 8, the President signed an executive order directing the Department of Treasury to defer withholding, deposit, and payment of employees’ social security taxes beginning September 1 through the end of 2020.

Employers and Employees Should Wait for More Guidance After the Executive Order

Following an initial review of the order, K·Coe’s recommendation, as of August 11, is to wait for additional guidance before ending employee social security tax withholdings.

Here is what has been proposed for employee payroll taxes:

  • For eligible employees, the employee’s 6.2% share of social security taxes are to be deferred beginning September 1 through the end of the year.

The Treasury Secretary is directed to explore avenues (including legislation) to eliminate the obligation to pay the deferred taxes.

Potential disadvantage for employees:  As it stands, any deferred taxes would be payable in January 2021 as soon as the deferral period ends. Without action to ensure that the deferred taxes will be forgiven, employees may be worse off having their entire remaining social security obligation withheld from their first January paycheck.

Additional clarity needed on tax administration and liability:  It is unclear how the deferral will be administered – the IRS has not yet released any guidance about what employers should do or how they should communicate the deferral to employees.

With uncertainty about whether the liability will be eliminated and how the IRS will administer the deferral, both employees and employers may want to continue withholding social security taxes for now, to protect employees against the likelihood of a large tax liability in January.

K·Coe will continue to monitor developments and communicate updates for both employers and employees should a new action be recommended.

Contact a K·Coe tax advisor with questions or concerns regarding these tax implications.


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