In early August, the President announced he was signing a number of executive orders designed to bring relief to American’s suffering through negative impacts from the pandemic.
Actually, three weren’t executive orders. They were what is referred to as executive actions.
One of them was a memo to the Secretary of the Treasury calling for a moratorium until January 1, 2021, on the collection of payroll taxes on individuals making less than $104,000 per year.
However well-intentioned the President’s action may have been, his call for a tax moratorium has created much confusion among employers in Connecticut and elsewhere.
Some guidance on what this President action means to your business:
- Payroll taxes help pay for Social Security and Medicare
- The President called for a moratorium on the collection of these taxes. A moratorium is a deferral on taxes owed – and it is temporary.
- The moratorium, if enacted by the Secretary, would begin September 1 and end December 31, 2020.
- As a deferral, this action does not relieve employees of their tax obligation. It merely postpones it until January 1, 2021. At that time, employees will owe the federal government all deferred payments.
- Until there is further guidance from the IRS, employers will want to be careful about not withholding payroll taxes from eligible employees since doing so will create a future debt to the IRS that employees might be unable to pay.
- It’s not clear of the moratorium will be mandatory or voluntary for employees. Some employees might choose to continue to pay the taxes to avoid a future debt.
- Will the IRS or Congress take action to forgive the tax liability? That is anyone’s guess.
- The President’s actions have no effect on state tax liabilities.
- The President is calling on Congress to make this action permanent. It is unclear what new funding measures would be required to fund Social Security, and Medicare should Congress take that action.
There is nothing worse than uncertainty for businesses and their workers.
According to a report on cnn.com, the U.S. Chamber of Commerce and more than 30 other trade associations recently expressed reservations it has about the President’s proposal: “Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year. It would also be unworkable to implement a system where employees make this decision,” wrote the groups, adding many of their members will likely decline to defer the tax.
Hopefully, this entire matter will gain clarity in the weeks to come.
If you’re an employer and have questions about labor law or employment law, consider calling on the attorneys at Kainen, Escalera & McHale in Connecticut. We do one thing and one thing only – we are exclusively an employer defense law firm – in fact, we are one of the largest employer defense law firms in the region. What’s more, each of our attorneys has over 25 years of experience in employment and labor law matters and can provide your business with comprehensive legal counsel ranging from assistance with necessary preventive measures to trial advocacy. Please contact us if we can help you.
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