August 26, 2020

Update on the President's Executive Memorandum on Deferring Payroll Taxes

Dear Clients,

As you know, on August 8, the President issued an Executive Memorandum allowing employees who make less than $104,000 a year to defer their payroll (Social Security) taxes starting September 1 through the end of 2020. We want to update you on what we know as of today.

We, along with the rest of the business community, are awaiting guidance from the Treasury Department to implement this memorandum. We know that the Secretary of the Treasury, Steve Mnuchin, has stated that participation will be voluntary – meaning an employer can choose not to allow their employees to take advantage of this deferral. In addition, the President’s top economic advisor, Larry Kudlow, stated that the President is looking for ways to “fully forgive” the payroll tax deferral. But nothing has been issued in writing from any US Government entity.

A common theme throughout the business community in response to this memorandum is the concern that employers will ultimately be responsible for the repayment of the payroll tax deferral. Federal tax law and IRS regulations make it clear that the employer is liable for unpaid payroll taxes – stated clearly on this IRS webpage. In a letter sent to the IRS by our national trade association (NAPEO), the first request was to make it clear that PEOs/CPEOs (and by association, our client businesses) are not responsible for deferred payroll tax payments – and that the employee who takes the deferral is ultimately and solely responsible. Letters from the American Institute of Certified Public Accountants, the National Payroll Reporting Consortium (NPRC) and the US Chamber of Commerce all make similar points. Last Thursday, the NPRC released a second statement to the Treasury outlining their concerns with the deferral memorandum.

With one week left before the memorandum goes into effect, we are all waiting for the Treasury to issue guidance on how the payroll tax deferral will work. We of course will let you know as soon as that happens.


The Employer Advantage Team