Payroll Tax Update

The Secretary of the Treasury has authority in the case of certain disasters (such as the one that has been declared for the COVID crisis) to postpone certain due dates under the tax code.

On August 8, 2020, President Trump prepared a memorandum for the Secretary of the Treasury, directing him to use this authority to defer due dates under the tax code to provide “temporary relief … to support working Americans.” Specifically, the President directed the Secretary to defer the dates for payment of the employee portion of payroll (Social Security and Medicare) taxes for the period September 1, 2020 to December 31, 2020, at least for employees making less than $4,000 (gross) every two weeks. These taxes are normally paid by means of employers withholding and depositing with the Treasury the amount of such taxes – 6.2% for Social Security and 1.45% for Medicare. The President also directed the Secretary of the Treasury to issue guidance to explain how this would work.

Until the Secretary of Treasury takes action pursuant to the Memorandum, and issues guidance, it is difficult to know what impact the Memorandum will have. The Memorandum obviously leaves a number of questions open, such as what the new due date for these taxes will be, and whether employers or employees will have the option of declining the deferral option. (For example, earlier in the year, the Secretary of Treasury used this same authority to postpone the April 15, 2020 due date for filing tax returns and making tax payments, to July 15, 2020, but this did not require taxpayers to take advantage of the postponed due date. See IRS Notice 2020-18.)