President Trump issued an Executive Order on August 8, 2020 that directs the Department of the Treasury to temporarily suspend withholding of the payroll tax from September 1, 2020 through December 31, 2020. The Order leaves many questions unanswered and Treasury is expected to soon issue guidance that provides important details about the payroll tax holiday. In the interim, below are some key takeaways from the Order:
- Employer participation is optional. It is unclear whether employers will have the authority to allow individual employees to opt in or out of any payroll tax holiday.
- Not all employees qualify. The Order applies to employees who make less than $104,000 per year. Employers must continue to withhold for employees earning more than $104,000.
- The taxes are still owed. The Order defers payment, it does NOT eliminate it. The payroll taxes must be paid after January 1, 2021, which could create hardships for employers and employees.
- The Order creates potential compliance issues. It is unclear whether an employer would still be responsible for remitting an employee’s deferred taxes in the event the employee leaves employment before they become due.
- The constitutionality of the Order is in question. It does not appear the President has the authority to defer, implement or set tax rates. Also, existing IRS regulations appear to prohibit any deferral of payroll taxes.
Treasury is expected to release guidance on this issue soon that will hopefully address some of the questions left unanswered by the initial Order.
For more information, please visit https://www.bakertilly.com/insights/presidents-payroll-tax-holiday-generates-questions.