Secretary Mnuchin acknowledged in an interview today that the employee Social Security tax deferral envisioned in President Trump’s Presidential Memorandum will not be mandatory.  The memorandum instructs the Treasury Department to issue guidance under Section 7508A permitting employers to suspend the withholding, depositing, and payment of the employee’s share of social security taxes (and the equivalent Tier 1 Railroad Retirement Tax Act taxes) for certain employees.  The suspension would apply to wages paid from September 1 through December 31, 2020.

As we reported in our earlier coverage of the August 8 memorandum, Section 7508A provides authority to the Secretary to disregard periods of up to one year in determining whether taxes were timely paid.  The statute does not, however, provide any mechanism to require taxpayers to delay the payment of taxes.  Accordingly, employers may choose to withhold and deposit the employee share of Social Security taxes without regard to the deferral.  Employers that elect to defer the withholding of the tax will remain liable under section 3102(b) for the payment of the employee’s share of Social Security taxes even if the employer does not withhold the tax and cannot later recoup the tax from the employee.  Indeed, if the employer ultimately pays the employee’s share of the taxes and does not recoup the amount from the employee, the payment would generally be an additional wage for which additional payroll taxes would be due.

President Trump has indicated that he intends for the employee’s share of Social Security taxes that may be deferred to be forgiven.  However, Sec. Mnuchin also confirmed in the interview that any forgiveness of the underlying tax liability will require Congressional action, a tenuous prospect given the fraught political environment in Washington.