President Trump signed an
executive order in early August which provides
a payroll tax holiday for American employees that can be implemented starting
today. 

The
executive order is a temporary measure that goes into effect today and makes
the deferral period September 1 through December 31, 2020. Any employee who
is paid less than
$4,000 before taxes per
bi-weekly pay period is eligible (equating to an annual amount of
$104,000). 

Typically, employees and
employers each pay half of the total 12.4% Social Security tax due for each
worker. But under the executive order, employers may choose to refrain from
withholding the 6.2% from employees for Social Security, thereby providing a
6.2% wage increase to all employees. Employers must still contribute their own
portion of the Social Security tax for each employee. 

The deferred amounts will not incur penalties or interest,
according to the executive order, but recent
guidance released by the IRS on August. 28 specifies that deferred payroll
taxes must be repaid between January 1, and April 30, 2021. Any tax that isn’t
repaid within that window will be subject to interest and penalties.

Employees
who see an increase to their paycheck this fall could potentially see double
the Social Security tax withheld from their paychecks at the start of 2021 in
order to pay back the deferral.

We await further guidance as to how exactly employees will be
expected to repay the deferred payroll tax. In the meantime, we have many
clients who will continue to withhold taxes as usual and not implement this tax
holiday.

Read
more about this executive order here,
and reach out to your HR Consultant with any questions.  You might also
consider discussing this with your accountant to get professional tax advice.

This
blog was authored by our Senior HR Consultant, Jennifer Adams.