As you are probably aware, on Saturday President Trump issued an executive order, with an effective date of September 1, to defer the withholding, deposit, and payment of the 6.2 percent Social Security tax (employee portion). The deferral applies to compensation paid between September 1 and December 31, 2020 to any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. The tax payments are deferred without any penalties, interest, additional amount, or addition to the tax. Unless there is a law changing the situation, the deferred taxes will be due at the beginning of 2021.

The US Deptarment of Treasury has not released implementation instructions on this yet, but everyone needs to be cautious employing this without fully understanding the ramifications.

Given the anticipated Treasury guidance, and the September 1 effective date, we DO NOT recommend that our clients take immediate action to implement the deferral. 

Employers will need to review any guidance issued by the Secretary of the Treasury and to evaluate the risks of implementing the deferral, which ultimately may need to be withheld from future employee compensation. It is possible that employers may decide not to implement the deferral given the risks of not being able to withhold the deferred taxes from future income (e.g., due to employee terminations).

We recommend that employers not make any changes to their payroll withholding processes until the implementation guidelines are clarified. Given the uncertainty surrounding how the deferral will be implemented and whether it actually will become effective, we think this is the most prudent course at this time.

If you have questions or need assistance, please reach out to us. We will continue to review all relevant guidance and legislation and will provide updates when available.