August 11, 2020: What Trump’s Payroll Tax Deferral Means for SMBs

Gusto Editors

August 11, 2020

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As the Paycheck Protection Program (PPP) expired on Saturday, August 8, Congress still had not come to agreement on the next stimulus package—so President Trump signed four executive orders in an attempt to extend COVID-19 relief. Two of them are important for employers to know about.

Let’s dive in:

Payroll tax deferral

The executive memo would defer employee payment of Social Security taxes (6.2% of their paychecks) between September 1, 2020 and December 31, 2020. Employees who generally make less than $4,000 every two weeks or less than $104,000 per year are eligible.

While this means more money in employees’ pockets for the rest of the year, it comes with some implications. 

Gusto analysis:

The memo seems to state that employees would opt in for this tax deferral, and employers must honor their opt-in requests. But employers may ultimately be on the hook for paying back those taxes when due. For example, if your employee is terminated but deferred their taxes, you could be responsible for paying what they owe—something to keep in mind as you navigate furlough and layoff decisions. If not the employer, employees may be hit with a big tax bill at the end of the year if they choose to opt in. Because ultimately, without further action, these taxes will need to be repaid.

Furthermore, the legality of this memo has been called into question as an overreach of executive power. Though the deferral isn’t set to start until September 1, we recommend employers and employees wait to take any action until there’s more clarity around the program.

Federal unemployment relief extension

To replace the federal government’s $600 unemployment assistance benefit that ran out at the end of July, a new memo authorizes an additional $400 per week to be added to unemployment checks. Eligible individuals can claim the benefit (retroactively) on August 1, 2020, through December 6, 2020. 

Gusto analysis:

Eligibility requirements have changed slightly. Claimants must be eligible for $100 of state unemployment or Pandemic Unemployment Assistance (PUA) to get the $400 stimulus, versus the $1 requirement for the previous benefit. So some business owners, like self-employed individuals or freelancers who have been making some money, may not get the stimulus under these new requirements.

There’s also confusion as to whether the president can legally allocate these funds, as federal spending is controlled by Congress. And while 25% of the benefit is expected to be paid out by state governments, it is possible certain states may choose to opt out or that they’ll take time to secure funding.  

Your big takeaway: Until this money is in your bank account, don’t count on it. 

There’s so much that’s unclear about these memos: Are they legal? Are they long-term? What happens to them once the stimulus package is passed? Gusto is conferring with the IRS this week to better understand what this means for small businesses. 

Check back on our payroll tax and unemployment memo breakdowns for the latest info, or sign up for notifications when you visit our blog to get notified when we make updates.

Top relief options for the week

  • Iowa Economic Development Authority announced an extension of the Iowa Small Business Relief Grant Program. Eligible nonprofits will be awarded up to $25,000 to compensate for reduced revenue or increased expenses due to COVID-19. Applications will be accepted until August 14.
  • Vermont announced the launch of a new grant program to help mitigate operational expenses and losses for child care centers, after-school programs, and summer day camps impacted by the COVID-19 pandemic. Applications are open through August 26.
  • The COVID-19 Relief Pennsylvania Statewide Small Business Assistance program will award grants ranging from $5,000 to $50,000 to small businesses that have been economically impacted by COVID-19. The second grant application window is open through August 28.

Want more small business news and resources? Check out past editions in our archive.

Gusto Editors Gusto Editors, contributing authors on Gusto, provide actionable tips and expert advice on HR and payroll for successful business management.
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