The future of federal payroll tax deferral is an issue that has generated much debate in recent months, with both sides loudly contesting the other’s claims.
Under an executive order signed by President Trump, employees would not be required to pay their share of the 6.2% Social Security tax that generally applies when working at or above $137,700 per year. This deferral applies to an employee earning $4,000 every two weeks. The grace period is a generous offer that will last from September 1 through the end of 2020.
While it is essential to recognize that this does not represent a complete waiver, the Treasury Department has been instructed by law to explore forgiveness for amounts owed. Lawmakers, judges, and tax attorneys are scratching their heads about the new administration’s policies. The AICPA has submitted a letter to Treasury and IRS requesting additional guidance on how they should be implementing President Trump’s memorandum. The organization also provides recommendations for this process to go smoothly.
The stimulus program passed in March as part of the CARES Act authorized a Social Security tax deferral for employers until the end of 2020. The CARES Act allows employers to offer a 50% payback on the amount they owe by 2021 and the other half in 2022. In response to the letter from AICPA, U.S Treasury Secretary Steven Mnuchin indicated that payroll tax deferral would not be mandatory for employers to implement.
