Over this past weekend, President Trump issued an Executive Order allowing your employees earning less than $4k per bi-weekly pay period to defer having Social Security and Medicare taxes withheld from their pay starting September 1, 2020 through the remainder of 2020.? Please note that as things currently stand, your employees will somehow need to repay any taxes deferred at a later date, essentially making this deferral an interest-free loan from the government.
When you pay your staff, you withhold federal income taxes and state income taxes from their gross pay.? You also withhold Social Security taxes at 6.2% and Medicare Taxes at 1.45% for a combined total of 7.65%, and those two taxes totaling 7.65% are what your employees can defer as of September 1st.
Let?s say you have an assistant who earns $1,000 per week. Under this Executive Order, you can stop withholding Social Security and Medicare taxes totaling $76.50 per week from that employee?s pay for the last four months of the year.? Down the road, that employee will need to pay back the government for those deferred payroll taxes (assuming the rules don?t change allowing the deferral to be forgiven.)
The Whitehouse Memorandum of Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster is available at: https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/.
The President has already hinted that these deferred taxes could end up being forgiven if he is reelected in November.? Meanwhile, experts warn that this Executive Order will most likely be challenged in the courts.? We?ll keep you posted as things development.