Withholding Tax Deferral Takes Effect: Now What?  

September 1, 2020 at 9:37 am Leave a comment

When Wimpy from the Popeye cartoons gladly promised to pay on Tuesday if he could have a hamburger today, it was just a joke.  In contrast, today marks the first day of President Trump’s Executive Order permitting employers to defer withholding the 6.2% Social Security Tax from employees making up to $4,000 on a bi-weekly basis.  The good news is that the Treasury and IRS issued a joint guidance late Friday night explaining the Executive Order.  The bad news is that there is still much confusion about how the tax is going to work.

What we know for sure is that the President has instructed the Treasury to defer the mandatory collection of the Social Security Withholding Tax from September 1 to December 31, 2020.  This tax is typically collected by employers who withhold it from the pay of their employees.  Employers are ultimately responsible to the Treasury for making sure the tax is collected and paid.  Starting January 1, 2021 through April 30, 2021 employers will be authorized to collect the amount of money deferred from employee’s paychecks. In other words, the employee who opts not to have his or her taxes collected will have to repay the deferred amount in addition to having their Social Security taxes automatically deducted from their paycheck once again.  This will be a great surprise as they start paying off the credit card bills from the holiday season.

Can the employer decide not to participate in this program?  According to the press release, the guidance “allows” employers to defer collecting the taxes.  The actual notice does not speak directly to this issue.  Please check with your accountant and/or attorney, but in my opinion, and simply my opinion, since Federal law indemnifies employers responsible for collecting withholding taxes from being sued and employers are still ultimately responsible for ensuring that the taxes gets paid, the most logical reading of the guidance is that employers may, but are not required to, defer collecting the tax.  Hopefully we will get more guidance on this issue in the coming days.

For those of you who decide that the safest thing to do is to defer collecting the tax, I would send out a notice to your employees explaining to them that they remain responsible for paying the tax and that starting in January your credit union will start collecting the taxes they have chosen to defer.

In his Executive Order, President Trump encouraged the Treasury to work with Congress.  Perhaps this will end up being nothing more than a game of legislative chicken with President and the Congress ultimately agreeing to waive collection of the taxes.  But making financial plans for your credit union based on the assumption that Congress and the President will agree on anything in the coming months is an awfully risky bet.  It would be like predicting that the Mets would lose to the Yankees even though they have a 5 run lead with two outs in the bottom of the last inning.

Entry filed under: COVID-19, Political, Regulatory. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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