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Summary of the Deferral of Payroll Tax and Other Executive Orders

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On August 8, 2020, President Trump signed four directives designed to extend aid to Americans experiencing economic challenges in the face of the current pandemic. Below is a summary of each and its potential impact on your organization, employees, or both.

Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

In this order, President Trump instructs Treasury Secretary Mnuchin to defer the collection of the employee’s portion of the old-age, survivors, and disability insurance tax (i.e., the 6.2% FICA portion withheld from an employee’s paycheck) on wages or compensation paid between September 1, 2020 and December 31, 2020. This deferral is only available for employees whose pre-tax wages or compensation are “generally” less than $4,000 during a biweekly pay period, or an equivalent amount with respect to other pay periods. No penalties, interest, or additions to the tax are to accrue by reason of this deferral.

This executive order does not eliminate the employee’s liability for the FICA tax. Rather, it simply defers payment until 2021. In addition, the order does not benefit unemployed individuals, ministers who are subject to SECA tax instead of the FICA tax, and self-employed individuals.

Secretary Mnuchin is ordered to seek any avenues that will lead to forgiveness of this obligation, including legislation. However, since Congress, and only Congress, controls the “power of the purse” under the Constitution, it is unlikely any solution other than legislation will result in forgiveness.

What’s next? Expect the Treasury Department to issue instructions to employers and payroll service providers as to how to suspend withholding of the employee’s portion of the FICA tax. In addition, employers and employees will need to track the deferred tax, as without further legislation it will remain an obligation of the employee. Finally, employees should actively plan for how they will pay the tax when it ultimately comes due.

Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners

This order provides four non-specific actions to be taken by various government agencies:

  1. The Secretary of Health and Human Services and the Director of the Centers for Disease Control and Prevention are to “consider whether any measures temporarily halting residential evictions of any tenants for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19” (emphasis added).
  2. The Secretaries of the Treasury and Housing and Urban Development are to identify any federal funds that may be used to provide temporary financial assistance to renters and homeowners who are struggling to meet their monthly mortgage or rent obligations because of COVID-19.
  3. The Secretary of Housing and Urban Development is to take actions such as assisting public housing authorities, affordable housing owners, landlords, and recipients of federal grant funds in minimizing evictions and foreclosures.
  4. The Treasury Secretary and Director of the Federal Housing Finance Agency are to “review all existing authorities and resources that may be used to prevent evictions and foreclosures for renters and homeowners resulting from hardships caused by COVID-19.”

None of these actions includes specific steps that will prevent evictions or foreclosures. Only time will tell if these government agencies are able to discover a means of providing relief.

Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019

This order provides for the use of certain Federal Emergency Management Agency funds to create an extension of federal unemployment benefits in the amount of $300 per week, but only if the claimant receives at least $100 in state unemployment compensation, Pandemic Emergency Unemployment Compensation (as described in the CARES Act), Pandemic Unemployment Assistance (as described in the CARES Act), and certain other government programs.

This program is to operate until December 6, 2020 or it runs out of money. Some commentators suggest it is unlikely the program will last beyond October due to the number of unemployed individuals and limited funds available.

This program is to be administered by the states and the states must individually opt to participate. It is unclear whether the states, encumbered by their own fiscal woes, will sign up for a program that requires them to spend their own funds to participate. Even if a state elects to participate, it will likely be several weeks before this program is operational.

Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic

This executive order provides student loan payment relief to individuals whose student loans are “held by the Department of Education” and are experiencing economic hardship. The relief includes a waiver of interest payments and deferral of principal payments from October 1, 2020 through December 31, 2020. The CARES Act already provides similar relief through September 30, 2020. Loans with private lenders are not covered by this program.

Note that some of these executive orders represent a significant reach by President Trump into areas constitutionally reserved for Congress. This blurring of the line between the executive and legislative branches will assuredly involve significant litigation that may delay or even kill the contemplated action of one or more of the orders. Even where there is a credible argument that an order falls within the authority of the executive branch, full realization of the benefit will likely require some further action of Congress — action that may not have the opportunity to take place until after the election.

Please contact us online or at info@capincrouse.com with any questions. See additional COVID-19 resources here.

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