Payroll Tax Deferral Takes Effect
President Donald Trump’s executive order to defer employee payroll taxes through the end of 2020 took effect on Sept. 1. Back in March, the CARES Act allowed employers to defer paying their share of the Social Security tax through the end of the year, but the law didn’t address employee payroll taxes. Trump, who supported a payroll tax cut for employees in CARES, signed the executive order because talks on a follow-up relief package stalled.
The new policy defers an employee’s obligation to pay the 6.2% Social Security tax from every paycheck, but it doesn’t forgive it. Employees would pay twice the tax from the first few months of 2021 to make up the deferred amount.
The Treasury Department issued guidance for employers just two days before the plan took effect. For some, it raises more questions than it answers. Many employers are questioning whether they should participate because the burden of execution and compliance lands on employers. The memo makes clear that it is their responsibility to pay back any taxes uncollected from employees in 2021. UPS said in a statement that it will not stop withholding the taxes. Other businesses will likely make the same decision.