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.

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Photo of S. Michael Chittenden S. Michael Chittenden

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden…

Michael Chittenden practices in the areas of tax and employee benefits with a focus on the Foreign Account Tax Compliance Act (FATCA), information reporting (e.g., Forms 1095, 1096, 1098, 1099, W-2, 1042, and 1042-S) and withholding, payroll taxes, and fringe benefits. Mr. Chittenden advises companies on their obligations under FATCA and assists in the development of comprehensive FATCA and Chapter 3 (nonresident alien reporting and withholding) compliance programs.

Mr. Chittenden advises large employers on their employment tax obligations, including the special FICA and FUTA rules for nonqualified deferred compensation, the successor employer rules, the voluntary correction of employment tax mistakes, and the abatement of late deposit and information reporting penalties. In addition, he has also advised large insurance companies and employers on the Affordable Care Act reporting requirements in Sections 6055 and 6056, and advised clients on the application of section 6050W (Form 1099-K reporting), including its application to third-party payment networks.

Mr. Chittenden counsels clients on mobile workforce issues including state income tax withholding for mobile employees and expatriate and inpatriate taxation and reporting.

Mr. Chittenden is a frequent commentator on information withholding, payroll taxes, and fringe benefits and regularly gives presentations on the compliance burdens for companies.