In a highly publicized press conference on Saturday, August 8, President Trump announced the issuance of an Executive Memorandum addressing payroll tax relief in light of the ongoing pandemic.
The Memo directs the Treasury Secretary to defer employers’ withholding, deposit and payment of Social Security and Medicare taxes from qualifying employees’ wages. It is effective between September 1 and December 31 of this year. Qualifying employees are those who generally earn less than $4,000 (before taxes) in a bi-weekly pay period, or $104,000 annually. The tax deferral would result in an increase in take home pay of 7.65%.
It’s important to note that the Executive Branch does not have the authority under the United States Constitution to do away with taxes imposed by existing laws – only Congress can do that. For that reason, the Memo also directs the Treasury Secretary “to explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred.”
With the President’s limited authority in mind, and the slim likelihood Congress will act before the election, the relief promised to taxpayers could be just temporary – it could open them up to an unexpected tax bill down the road. The Memo also leaves open important questions about how it will be implemented, such as whether it will be mandatory or optional for employers and employees to accept the deferral. Given the September 1st start date for the tax deferral, implementing guidance from the Treasury Department is expected soon.
We will continue to share updates as guidance is issued.