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Business Groups Indicate That Many Members Will Not Defer Payroll Tax Withholding

(Parker Tax Publishing August 2020)

A coalition of organizations representing businesses, including the U.S. Chamber of Congress and over 30 industry trade groups, signed a letter addressed to Senate Majority Leader Mitch McConnell, Speaker of the House Nancy Pelosi, and Treasury Secretary Steven Mnuchin, expressing their concerns with President Trump's recent executive action on the deferral of payroll tax obligations as a way of addressing the economic effects of the COVID-19 pandemic. The letter states that without Congressional action to forgive the payroll tax liability, the deferral will impose serious hardships on employees who will face a large tax bill in 2021, and the letter indicates that many members will likely decline to implement deferral and instead choose to continue to withhold and remit the payroll taxes required by law. Chamber of Commerce Letter on Payroll Tax Deferral, August 18, 2020.


On August 8, 2020, President Trump signed four executive actions intended to assist individuals and businesses suffering as a result of the economic fallout from the COVID-19 pandemic. One of these executive actions, Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster (Payroll Tax Memorandum), directs Treasury Secretary Steven Mnuchin to use his authority under Code Sec. 7808A to defer the withholding, deposit, and payment of employee social security taxes, as well as taxes imposed under the Railroad Retirement Tax Act (RRTA) on railroad employees, for the period of September 1, 2020, through December 31, 2020.

Under the Payroll Tax Memorandum, the deferral is only available with respect to any employee with wages or compensation, as applicable, payable during any bi-weekly pay period of less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods. This equates to $104,000 per year. The Payroll Tax Memorandum provides that the amounts deferred are not subject to any penalties, interest, additional amount, or addition to the tax. The Payroll Tax Memorandum also authorizes Secretary Mnuchin to issue guidance to implement these orders and directs him to explore avenues, including legislation, to eliminate the obligation to repay the deferred taxes.

Business Groups Weigh In

On August 18, the U.S. Chamber of Commerce, along with over 30 industry trade groups, signed a letter addressed to Senate Majority Leader Mitch McConnell, Speaker of the House Nancy Pelosi, and Secretary Mnuchin, raising concerns regarding the uncertainty associated with the Payroll Tax Memorandum and urging the Trump administration and Congress to work together to provide much-needed tax relief for families.

The letter states that the Payroll Tax Memorandum creates a substantial tax liability for employees at the end of the deferral period and that without Congressional action to forgive this liability, serious hardships may be imposed on employees who will face a large tax bill as a result of deferral. The letter includes a chart showing the increase in take-home pay per pay period and the taxes due in 2021 for various income levels up to the $104,000 wage limit. For example, the letter indicates that an individual earning an annual income of $75,000 would see an increase per pay period of $248 as a result of payroll tax deferral, but be hit with a tax bill of $2,232 in 2021 (based on nine pay periods).

According to the letter, if the payroll tax were suspended, so that employees were not forced to pay it back later, implementation would be less challenging. The letter states that many members consider it unfair to employees to make a decision that would force a big tax bill on them next year, and it would be unworkable to implement a system where employees make this decision. Therefore, the letter indicates that many members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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