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Client Alert-EXECUTIVE ORDER ON WITHHOLDING PAYROLL TAXES HAS EMPLOYERS SHAKING THEIR HEADS

Aug 11, 2020
  • Employment Law
  • FisherBroyles News

To avoid burying the lede, FisherBroyles recommends that businesses wait and closely monitor the situation, directly or through our taxation and employment practice groups, until the Internal Revenue Service and/or the Secretary of the Treasury issues written guidance. The title of a recent Wall Street Journal article reflects our opinion: ‘Employers Cast Wary Eye on Trump Payroll-Tax Deferrals.’ In any event, August 8, 2020 Executive Order (“EO”) addressing this development is effective on September 1, 2020, so companies have time to consider their next steps.

As noted from the preceding title, the EO on its face is NOT a payroll tax cut, but only a temporary cessation of the 6.2% employee portion of Social Security withholding (but not the Medicare portion) for employees who earn a gross salary of $104,000 annually (stated as $4,000 per bi-weekly pay period in the EO). It appears that absent new legislation enacted by Congress and signed by the president, the IRS could seek to collect from employees in early 2021any payroll taxes that employers withhold from them today. Critically, if employees fail to pay these amounts, some advisors question whether employers could be ultimately liable for any employee underpayment. Read that last sentence again because if any such employers no longer work for the employer, the IRS could very well seek recompense from the employer, who is left holding the proverbial bag.

It is possible that administrative guidance will resolve some of the ambiguity as to whether amounts otherwise payable but not withheld pursuant to the EO are recoupable from employees and/or employers. However, it is equally possible, indeed likely, that there will be a constitutional (or other legal) challenge to the President’s authority to implement any of the changes provided in the EO, causing even more ambiguity about the status of no longer withholding payroll taxes pursuant to the EO.

If administrative guidance clarifies that employers who act in accordance with the EO are relieved of liability for amounts owed by employees, the withholding can be reduced and the equivalent funds may be paid to employees. The EO stated employers may rely on the guidance without incurring penalty or other charges. It may be that later guidance is clear that employers would not risk any kind of penalties in the event that the EO is repealed or challenged successfully.

We will keep you posted on these developments, and we suggest working closely with your FisherBroyles lead to determine the appropriate next steps going forward. If you use a third party payroll service, we would anticipate that they could provide useful input as well.

 

For additional information, please contact any of the following: Martin B. Robins at [email protected], Jess Bahs at [email protected], Paul D. Economon at [email protected], Amy Epstein Gluck at [email protected] with any questions or more specific situations.

 

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