President Trump Issues COVID-19 Executive Orders, Including Payroll Tax Deferral

Thoughtware Alert Aug 11, 2020
Pillars on a Government building

On August 8, 2020, President Donald J. Trump signed an executive memorandum directing the U.S. Department of the Treasury (Treasury) to defer certain payroll tax obligations amid the ongoing COVID-19 pandemic. 

In March, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included a provision allowing employers to defer the deposit and payment of the employer’s share of 2020 Social Security tax until December 31, 2021, and December 31, 2022.  

This recent executive order, however, defers the withholding, deposit, and payment of the employee portion of the 6.2 percent Social Security tax (but not the 1.45 percent Medicare tax) for the period of September 1, 2020, through December 31, 2020, for workers earning less than $100,000 annually. Specifically, this deferral is available to employees whose biweekly compensation is less than $4,000, calculated on a pretax basis. The amounts are deferred without any penalties, interest, additional amount, or addition to the tax. The goal is to free up money for workers as the U.S. economy recovers. However, the president doesn’t have the authority to enact a true payroll tax holiday via an executive order, meaning this deferral is temporary, and employees will eventually have to pay any deferred payroll tax at some point in 2021 unless Congress enacts legislation to permanently eliminate the deferred obligation. 

The executive order directs Treasury Secretary Steven Mnuchin to issue guidance on implementing the payroll tax deferral. Until Treasury issues guidance, employers are left with many questions on how to actually implement the deferral, including whether an employer is required to stop withholding Social Security for eligible employees and what obligation an employer may have if it stops withholding an employee’s Social Security tax pursuant to the executive order and the employee fails to pay the deferred amount. 

The White House has continually requested a payroll tax holiday as Congress negotiates phase 4 of coronavirus-related stimulus legislation. In May, House Democrats released their version of phase 4 legislation, the Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES Act) (read our overview of the HEROES Act). In July, Senate Republicans released their version of the next round of stimulus bills, as the Health, Economic Assistance, Liability Protection, and Schools Act (HEALS Act) (read our overview of the HEALS Act). Congress was expected to reconcile their versions of the stimulus bills last week, but talks fell through, and as a result, the White House issued a series of executive orders. 

In addition to the employee payroll tax deferral, President Trump used executive orders to divert federal disaster aid funding to continue additional $400 per week unemployment payments (the CARES Act $600 per week unemployment payments expired at the end of July); direct the secretary of Health & Human Services and the director of the CDC to temporarily halt residential evictions; and extend the CARES Act student loan relief granted by the CARES Act through the end of the year.  

Whether these executive orders will be challenged as unconstitutional, how exactly the government will implement these orders, or whether this will spur Congress to come to an agreement on another stimulus bill remains to be seen. We’ll continue to monitor this situation and provide more details once Treasury issues additional guidance. 

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