President Trump’s executive memorandum to defer the payment of employees’ portion of payroll taxes will take effect this month for eligible federal employees, according to a White House spokesperson.
“The federal government will implement an across-the-board payroll tax deferral by all federal payroll providers, so all federal employees who meet the income threshold will see savings,” Rachel K. Semmel of the Office of Management and Budget told Tax Notes August 31.
On timing, Semmel said, “We want all payroll providers to implement the deferral on the same schedule, so the deferral should be implemented starting with the second paycheck in September.”
Semmel said the president put forth the action to give relief to all Americans during the coronavirus pandemic.
“As an employer, the executive branch is implementing the deferral to give our employees relief as quickly as possible. . . . The president took action when Congress didn’t,” Semmel said.
The August 8 executive memorandum directs Treasury Secretary Steven Mnuchin to defer the withholding, deposit, and payment of the payroll tax on wages or compensation paid September 1 through December 31, for any employee whose wages or compensation during a biweekly pay period is generally less than $4,000 before taxes.
The memorandum also directs Mnuchin to explore methods of eliminating the taxpayers’ obligation to pay the deferred taxes.
IRS guidance released August 28 (Notice 2020-65, 2020-38 IRB 1) requires the deferred taxes to be repaid within the first four months of 2021. Interest, penalties, or additions to tax will accrue beginning May 1, 2021, according to the notice.
The notice doesn’t directly address how employers should handle the deferred taxes of employees who later quit or whether employees can opt out.
Before the release of the IRS notice August 28, House Ways and Means Committee member Donald S. Beyer Jr., D-Va., questioned both the legality and practicality of plans to defer the payroll taxes of federal employees. “The Trump Administration’s plan to initiate payroll tax deferrals for civil servants treats the federal workforce as a guinea pig for a bad policy that businesses already rejected as ‘unworkable,’” he said in a release.