On August 8, 2020, President Trump signed a presidential memorandum, allowing employers to defer deducting payroll taxes from employee paychecks from September 1, 2020 through December 31, 2020. The memorandum offered little guidance beyond the fact that it is only eligible for employees making less than $4,000 per bi-weekly pay period, or the equivalent amount for different pay schedules. 

However, on August 28, 2020, the IRS issued further guidance on the payroll tax deferral memorandum. Here are the answers to some of the frequently asked questions on the Trump payroll tax deferral:

Can you opt out of the payroll tax deferral?

• This is an optional deferral program and employers can choose not to participate in the program. 

How much of the payroll taxes can be deferred?

• The deferral only applies to the social security portion of payroll tax, which is 6.2% of employee pay. 
• Additionally, the deferral only applies to employees, and not to the employer portion of social security payroll taxes.

Do the payroll taxes need to be repaid?

• This is not a payroll tax cut so any unpaid taxes will need to be repaid, dollar for dollar, in the future.

What is the repayment period for the Trump Payroll Tax Deferral?

• The repayment period for the deferred payroll taxes is from January 1, 2021 through April 30, 2021. 
• Any payments paid after May 1, 2021 will be subject to penalties and interest.

Other Considerations:

The IRS also noted that the responsibility to collect the deferred payroll taxes falls to the employer, regardless of whether or not the employee is still working for the employer at the time repayment is required. It does not matter if the employee was terminated or left on their own.

Employees who participate will also still be required to pay their regular social security taxes during the repayment period, which means employees will pay the regular 7.65% payroll tax, plus a portion of the 6.2% payroll tax that was deferred. This will result in even smaller paychecks during the repayment period for those who decide to opt into the current deferral program.

Looking for an independent fiduciary financial advisor who can advise you on investments, retirement, real estate, alternative assets, and taxes? Contact ACap Advisors & Accountants to schedule a free initial consultation. Our clients include individuals, small businesses, entrepreneurs, and anyone serious about saving and investing for their future.

Matt Crisafulli, CFP, EA is a partner at ACap Advisors & Accountants, LLC in Los Angeles, CA.