Trump’s Payroll Tax Holiday Leaves Employers and Employees Seeking Guidance
On August 8, 2020, President Trump signed an executive order that defers an employee’s portion of Social Security and Medicare taxes from September 1 through December 31, 2020. While the taxes still have to be paid at a later date, the action directs U.S. Treasury Secretary Steven Mnuchin to “explore avenues, including legislation, to eliminate the obligation to pay the taxes.”
While the CARES Act included payroll tax deferrals for employers, Trump’s executive order is instead intended to defer collection of employee tax from people making up to $104,000 from September until the end of the year, meaning employees would need to repay the government in 2021.
The deferral will be calculated on a pretax basis or the equivalent amount with respect to other pay periods. The amounts will also be deferred without any penalties, interest, or addition to the tax.
While the exact impact on employers and employees isn’t yet known, there are many open questions, including President Trump’s legal ability to implement the deferral. Some experts believe there may be legal challenges to this executive action.
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