Payroll Tax Update

On August 8,2020, President Donald Trump signed four COVID-related orders after weeks of failed negotiations between the White House and Congress on a new sweeping stimulus package.

The orders — one executive order and the other three memoranda — address four categories: jobless aid, evictions, student loans, and not surprisingly, the implementation of these orders are unclear, and we expect additional guidance to follow.

KEY PROVISIONS

EXTENDED FEDERAL UNEMPLOYMENT

This memorandum reinstates the federal jobless aid bonus but will reduce weekly payments from $600 to $400. States will be asked to cover 25% of the cost and can use federal funds allocated through the CARES Act, the $2.2 trillion economic stimulus bill signed into law in March. It will be up to states to determine how much if any of it to fund.

DEFERRAL OF THE PAYROLL TAXES

This memorandum reduces the 7.65% Social Security and Medicare payroll tax to boost take-home paychecks until the end of the year. This will affect paychecks from August 1st until the end of 2020.

The President is asking Treasury to look into whether those payroll taxes can be forgiven. For now, however, the Executive Order only allows for deferral. That means – without further action – that the taxes have to be paid. The deferral is effective for the period of September 1, 2020, through December 31, 2020 (retroactive to paychecks starting August 1, 2020).

The Executive Order states that the relief is restricted to “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount concerning other pay periods.” That generally works out to a restriction on those making more than $100,000 annually.

The Executive Order has directed Treasury to issue guidance on the matter. We will provide more information once we receive initial guidance.

DEFERRAL OF STUDENT LOANS

The memorandum allows borrowers with federally held student loans to have the option of deferring payments with no penalty. This will be extended through the end of 2020 for now.

 

EXTENDED EVICTION MORATORIUM

The executive order will extend the freeze on evictions.