Much has been said lately about the recent executive memorandum (not order) to defer payroll taxes. (Read the order, here: https://www.whitehouse.gov/presidential-actions/memorandum-deferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/).
I’m issuing a “Urgent Caution” on the new Payroll Tax Deferment Memorandum*. Here’s why…
1. For both employers and employees, the deferment creates a tax loan you didn’t seek and likely don’t want. Since the 15% payroll tax is split between employer and employee, both will have to save that money for the day it likely will come due. Past administrations, through Congress, have approved temporary payroll tax holidays, which meant that the tax liability removed for the declared “holiday.” Debt to the treasury did not accumulate. This Memo is not a “holiday,” but a deferment.
2. According to Section 4 of Memorandum, the Secretary of the Treasury is directed to seek ways to forgive the deferred amount. He can seek through Congress, but he may not find given both Reds and Blues long ago chose against a payroll tax holiday as a component of their past and present stimulus plans.
3. According to Section 5(b), the deferment must comply with appropriations. Attorneys will likely sort this out in court because Congress hasn’t appropriated funds to cover the temporary deferment—and may not need to since the Memo is not forgiving the payments.
4. The deferment may cost you more than the taxes owed. Yes, there is a small risk that penalties and interest may accrue, as the rules for the deferment have yet to be written.
- When you’re using Catipult.AI, this deferment does nothing to help achieve your KPIs for the Cash driver. Instead, it adds debt that you probably don’t want.
- Talk to your tax attorney.
- Employers should talk to their tax attorneys and likely wait for the situation to become legally clear.
- If your employer does stop paying your payroll taxes, save the money–don’t spend it until it is clear that it will be forgiven.