Executive Order Defers Employee Payroll Taxes –
Or Does It?

On August 8, 2020, President Trump signed the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster, an executive order directing the U.S. Secretary of Treasury to defer employee Social Security payroll tax obligations in response to COVID-19. The deferral would apply only to the employee’s portion of Social Security taxes beginning on September 1, 2020, and ending on December 31, 2020, for all employees making less than $104,000 per year.

While the executive order defers the withholding, deposit, and payment of these payroll taxes for the final four months of 2020, it does not relieve employees of the obligation to pay them after December 31st. In addition, the executive order directs the Secretary of Treasury to issue guidance on how to implement the order, and also instructs the Secretary to pursue legislation or explore other avenues to forgive the deferred payroll taxes. As of this writing, however, the Secretary has yet to take any action in response to the executive order.

Absent guidance or direction from the Secretary of Treasury, the executive order leaves a number of questions unanswered. These include whether it is the employee’s or employer’s decision to elect the deferral, how employers should administer any deferrals (e.g., whether and how to withhold the deferred taxes), and if the executive order is legally binding absent congressional authorization.

Given the uncertainty surrounding the executive order, CAPLAW recommends that CAAs continue to withhold and remit the employee's portion of Social Security payroll taxes from employee compensation until the Secretary of Treasury provides further clarification or direction. 

Note that this executive order is separate from existing payroll tax relief available under the CARES Act. The CARES Act allows employers to delay paying the employer’s portion of Social Security taxes on all employee wages through December 31, 2020, unless an employer receives a PPP loan and has it forgiven. For more information about the payroll tax relief available under the CARES Act, see CAPLAW’s resource, CARES Act Benefits for Nonprofit CAAs.

CAPLAW will continue to monitor the situation and update the network on any additional guidance issued by the Secretary of Treasury.

This News Flash is part of the Community Services Block Grant (CSBG) Legal Training and Technical Assistance (T/TA) Center. It was created by Community Action Program Legal Services, Inc. (CAPLAW) in the performance of the U.S. Department of Health and Human Services, Administration for Children and Families, Office of Community Services Cooperative Agreement – Grant Award Number  90ET0467-03-02. Any opinion, findings, conclusions, or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the U.S. Department of Health and Human Services, Administration for Children and Families.

The contents of this news flash are intended to convey general information only and do not constitute legal advice. Any communication through this publication or through CAPLAW’s website does not constitute or create an attorney-client relationship. If you need legal advice, please contact CAPLAW or another attorney directly.