EMPLOYERS: QUICK ACTION REQUIRED ONCE TREASURY GUIDANCE IS RELEASED

On August 8th, President Trump signed a memorandum directing the Treasury Department to defer the collection of the employee portion of Social Security FICA taxes, a portion of payroll tax withholdings, from September 1st through the end of 2020. This amounts to 6.2% of an employee’s taxable earnings up to $137,700 annually. FICA taxes associated with Medicare will not be deferred. Employees who earn less than $4,000 (pre-tax) during any bi-weekly pay period are to have this deferral made available to them, and these taxes would be deferred without any penalties or interest. However, it’s extremely important to note that, as of now, this is a tax deferral, not a tax waiver; while employees would see a marginal increase in take-home pay now, they may be required to repay the deferred taxes later. 

Employers will need to be prepared to act quickly in order to ensure compliance, including working with payroll administrators to verify that payroll systems are adjusted by September 1st. The Treasury Department is expected to release guidance this week, outlining what employers need to do to be compliant. This directive is also expected to be challenged in court and could be blocked. In the meantime, while we wait to see how the guidance and legal challenges shake out, you need to start to prepare now. There there will be a very small window to become compliant by September 1st once guidance is released. 

Take the following steps now while awaiting Treasury guidance:

• Contact your payroll administrator to discuss any steps that you will need to take on your end to ensure that FICA Social Security payroll taxes are withheld beginning September 1st, pending issuance of Treasury guidance;

• Prepare to notify employees that less of their pay may be subject to payroll taxes through the end of the year. As part of your notification, it’s critical to communicate that, while many employees will see their take-home pay increase temporarily while the deferral is in effect, they may be required to repay these deferred taxes at a later date. Employees may need to budget for the repayment of these taxes in the future; 

• Make sure your HR representative and/or leadership team are aware of how payroll will be affected by this directive and are prepared to answer employee questions. Employees may be confused by current and future paycheck adjustments associated with these taxes  

We’ll follow up with another blog post once the Treasury guidance is available.