President Trump Signs Executive Order on Pandemic Relief
President Donald Trump recently signed an executive order and three memorandums to address pandemic relief in response to the ongoing impact of the coronavirus (COVID-19) pandemic. After negotiations for a relief package between the White House and lawmakers collapsed, the executive actions are intended to extend pandemic unemployment benefits, student loan payment deferrals, eviction protections, and payroll tax cuts.
Actions Address Unemployment Benefits
One of the memorandums signed is intended to extend federal unemployment benefits. This action is intended to create a new benefit of $400 per week into December—which is a decrease from the previous unemployment insurance of $600 per week. The $600 amount received approval in March and was scheduled to expire at the end of July. According to Trump, states will be responsible for covering 25% of costs, or $100 per week, per individual.
Much of the workforce affected by COVID-19 has been reliant on unemployment benefits, which were scheduled to expire at the end of July. Congress and the White House had been negotiating a broader pandemic aid package, with unemployment benefits discussed as a core component. In the absence of an agreement, these actions were taken by Trump to address an extension for pandemic relief programs.
Student Loan Payments, Payroll Tax Cuts
One of the memorandums issued addresses student loan payment deferrals. Payments on federal loans were suspended through September, and Trump’s memorandum seeks to extend payments through the end of 2020. Lastly, Trump issued a memorandum deferring payroll tax obligations through 2020, advising the Treasury Department to allow employers to defer payments for the employee portions of specific payroll taxes. Generally, federal funding is controlled by Congress, leading to potential challenges for these executive actions.
Lets dive in deeper into the Payroll tax deferral:
The order we are getting the most questions about is Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster (linked on our site).
Pursuant to the Executive Order, the Secretary of the Treasury is directed to use his authority to defer the withholding, deposit, and payment of the 6.2 percent Social Security tax on certain wages or compensation paid between September 1, 2020, and December 31, 2020, subject to the conditions described below.
The withholding deferral is to apply only with respect to employees with wages or compensation payable during a bi-weekly pay period that generally is less than $4,000, calculated on a pre-tax basis (or the equivalent amount with respect to other pay periods). It is unclear what the “generally” means in this context and further guidance will be necessary in order to implement the Executive Order. The Secretary of the Treasury is directed to issue such guidance.
Additionally, the amounts deferred are to be without penalties, interest, or additions to the tax. The Secretary of the Treasury is also directed to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.”
Given that a comprehensive stimulus bill may be passed that will obviate the need for the Executive Order, the anticipated Treasury guidance, and the September 1 effective date, we do not recommend that employers take immediate action to implement the deferral.
Even in the absence of such legislation, employers will need to review any implementing guidance issued by the Secretary of the Treasury and to evaluate the risks in implementing the deferral of the employee portion of the Social Security tax, which ultimately may need to be withheld from future employee wages or compensation. It is possible that employers may decide ultimately not to implement the deferral described in the Executive Order given the risks of not being able to withhold the deferred taxes from future income (e.g., due to employee terminations).
Accordingly, I recommend that employers continue to monitor applicable guidance, but not make any changes to their payroll withholding processes at this time. I realize that changes to payroll systems require lead time, but given the uncertainty surrounding how the deferral will be implemented and whether it actually will become effective, I think this is the most prudent course at this time.
If you have questions or need assistance, please reach out to the People Processes Team with whom you regularly work. We will continue to review all relevant guidance and legislation and will provide updates as appropriate.
Keep in mind, this does not affect the broader FFCRA/CARES act Deferral of employment tax deposits and payments through December 31, 2020
That is still a viable option for most businesses. The executive order is about the actual withholding. You can still defer all 941 payments through this year, with 50% due end of 2021, and the remainder in 2022!
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