On Aug. 8, 2020, President Trump signed executive orders to extend certain coronavirus-related economic accommodations made by Congress that had expired in July.
Relying on Section 7508A of the Internal Revenue Code, the president signed an executive order to defer the collection of payroll taxes through Dec. 31, 2020, directing Treasury Secretary Steven Mnuchin to provide guidance for implementing the order. The order says the deferral begins Sept. 1, 2020, though the president has discussed potentially making it retroactive; we will update this page if a change is made.
The deferral is available to employees with less than $4,000 in pretax wages payable during any biweekly pay period. Amounts of payroll tax deferred are deferred without any interest or penalties.
The President’s other executive orders signed August 8 included those for continued expanded unemployment coverage and a moratorium on evictions.
What does CohnReznick Think?
The deferral of payroll taxes has worried some lawmakers because payroll taxes fund such crucial programs as Social Security and Medicare, and it is possible that Congress may challenge the order. Many are concerned with the impact this payroll tax deferral will have on further depleting these programs, vital to so many Americans.
The payroll tax deferral is only a deferral to assist taxpayers in weathering the economic storm brought on by COVID-19, not forgiveness of tax liability. Payroll taxes must still be paid down the road when the deferral expires, unless the tax is more permanently forgiven by Congress. Taxpayers may then find themselves faced with “balloon payments” on their payroll tax liability. Taxpayers should therefore plan accordingly to accommodate for necessary cash flow after the deferral’s expiration. Consult your tax advisors to discuss how this latest tax deferral may affect you and your business.
Subject matter expertise
CPA, JD, Managing Partner - Tax
CPA, Partner, Practice Leader, Federal Tax Services
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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.