Trump Administration Directs Treasury to Defer FICA Taxes Due to COVID-19 | Practical Law

Trump Administration Directs Treasury to Defer FICA Taxes Due to COVID-19 | Practical Law

The Trump administration has instructed the Department of Treasury to permit deferral of the employees' share of Federal Insurance Contributions Act (FICA) taxes (Social Security portion) for certain wages paid between September 1, 2020, and December 31, 2020. The deferral of payroll taxes is intended to alleviate some of the burden imposed by the US outbreak of COVID-19.

Trump Administration Directs Treasury to Defer FICA Taxes Due to COVID-19

Practical Law Legal Update w-026-9646 (Approx. 4 pages)

Trump Administration Directs Treasury to Defer FICA Taxes Due to COVID-19

by Practical Law Employee Benefits & Executive Compensation
Published on 11 Aug 2020USA (National/Federal)
The Trump administration has instructed the Department of Treasury to permit deferral of the employees' share of Federal Insurance Contributions Act (FICA) taxes (Social Security portion) for certain wages paid between September 1, 2020, and December 31, 2020. The deferral of payroll taxes is intended to alleviate some of the burden imposed by the US outbreak of COVID-19.
On August 8, 2020, the Trump administration issued an order instructing the Treasury Department to defer withholding and payment of the employees' share of Federal Insurance Contributions Act (FICA) taxes (Social Security portion) for certain wages paid between September 1, 2020, and December 31, 2020. The deferral is intended to alleviate some of the burden imposed by the US outbreak of COVID-19, the disease that results from SARS-CoV-2.
(For a continuously updated collection of resources addressing COVID-19, see Practical Law's Global Coronavirus Toolkit.)

National Emergency Declaration for COVID-19

The Trump administration's order cites the severe consequences to US employees as its basis, as evidenced by the President's national emergency declaration for COVID-19 (in March) under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) (see Practice Note, COVID-19 Compliance for Health and Welfare Plans: National Emergency Declaration Due to COVID-19). That national emergency declaration remains in effect at present.

Order for Deferral of Certain Payroll Taxes

The order directs Treasury to defer withholding, deposit, and payment of the employees' share of:
According to the administration, the deferral is authorized under an Internal Revenue Code (Code) provision permitting the postponement of certain specified deadlines due to Presidentially declared disasters (26 U.S.C. § 7508A). (This Code provision was also recently used to extend certain compliance deadlines in the employee benefits space (see Legal Update, Agencies Extend Benefit Plan Compliance Deadlines Due to COVID-19).)
The deferral applies regarding wages paid between September 1, 2020, and December 31, 2020. However, the deferral is subject to the following exceptions:
  • It applies only to employees whose bi-weekly wages do not exceed $4,000 before tax.
  • No penalties, interest, or other amounts may be imposed regarding the deferred amounts.
In addition, the order instructs Treasury to:
  • Issue guidance implementing the deferral.
  • Explore options (including legislation) to eliminate subsequent payment of the deferred taxes.

Practical Impact

Issued over the weekend, the administration's order has already been the topic of concerns involving its constitutionality. Those challenges aside, the next step would be for Treasury to issue implementing guidance regarding the order – presumably on a short timetable, given the order's coverage period. It's also possible that Congress could advance legislation in this space in the coming days.