Update on Executive Order Deferring Withholding of Employee Social Security Taxes – What Should an Employer Do?

It’s been almost two weeks since President Trump’s August 8 executive order “directing the Secretary of the Treasury to use his authority” under Section 7508A of the Internal Revenue Code “to defer certain payroll tax obligations with respect to the American workers most in need.”  Since that date, there has not been any official guidance from the IRS or the Treasury on how this deferral program will work. (See our OTO article published on August 10 for specific details: https://www.schneiderdowns.com/our-thoughts-on/executive-order-deferring-withholding-employee-social-security-taxes

As time goes by, and based upon comments made by Treasury Secretary Steven Mnuchin in a Fox Business News interview published August 12, it appears that the decision is going to rest upon each individual business on whether to move ahead and defer withholding of employee social security taxes.  In response to a remark from Fox News’ Maria Bartiromo that employers are “facing a series of costs, uncertainties and headaches,” Secretary Mnuchin responded:

"Well, we're going to create a level of certainty for employers that want to participate.  We can't force people to participate.  But I think many small businesses will do this and pass on the benefits.  But I think the President would like to do a payroll tax cut so he'll go back to Congress when he wins the election and ask Congress to have this money forgiven and have the Social Security trust fund fully topped up so that in no way does this impact Social Security."

https://www.foxbusiness.com/money/steven-mnuchin-white-house-coronavirus-aid-negotiations  (Note: approximately six minutes into the piece)

His response certainly seems to indicate that the program is elective and that, under the executive order, the program only provides for an employee payroll tax deferral and not a tax cut to employees.  Businesses need some level of certainty for which, to date, they have not received.  Further, many employees may not appreciate the difference between a temporary tax deferral and permanent tax cut, and the employer may have some business ethical responsibility to explain the program to them.

Based upon the lack of guidance to employers, the uncertainty facing employees regarding an obligation to repay the deferral, Secretary Mnuchin’s statement, and the limited time between now and September 1 to update payroll systems and communicate the plan to employees, it would be understandable for businesses to conclude that they will not offer the employee payroll tax deferral program beginning September 1.  Nor would it seem likely that businesses would offer the program after that date without specific governmental program guidance and an understanding of any potential business liability they may face for incorrect deferral or non-repayment of deferrals by employees. 

We are continuing to monitor this situation on a daily basis.  As details emerge, we will keep you informed.  In the meantime, if you have any questions, please do not hesitate to contact your Schneider Downs tax advisor.