Employers Face Confusion Over Trump’s Payroll Tax Relief Order

On August 8, 2020, President Trump signed an Executive Order ("EO"), providing, among other things, some payroll tax relief to workers. The payroll tax EO delays but does not forgive, the deadline for paying workers’ share of Social Security payroll tax. This delay means that while employees might enjoy a temporary increase in their take-home pay, as of now, the tax will eventually have to be repaid, although the order doesn’t say when. The EO is effective from Sept. 1 through Dec. 31, so it is presumed the taxes will be due at the beginning of next year. The EO applies to people who make less than $104,000 per year. According to many sources, President Trump is assuming that Congress will eventually forgive the deferred payroll tax. The Department of Treasury has been instructed to issue the guidance necessary to implement the EO. As of the date of this posting, no such guidance has been released.

The EO raises many unanswered questions, such as what would happen if Congress chooses not to forgive payment of the tax and what should employers do. While employers hope to have guidance before September 1st on implementation of the tax relief order, they should begin preparing now. Those employers who use payroll companies should not delay in communicating the change in withholdings to the payroll company. Sometimes these companies need a bit of lead time to change their automatic withholdings. In-house payroll processors should be made aware as well of the temporary change. Finally, employees should be notified that while they will see an increase in their net pay possibly the remainder of the year, they should be prepared to pay the tax retroactively if not forgiven after the expiration of the EO. Meanwhile, a legal challenge to the President’s authority may also resolve many questions.

Stay tuned to the Workplace Report for updates on this and other ever-changing workplace employment issues.