INSIGHTi
COVID-19: Presidential Order Deferring
Individual Payroll Taxes
Updated September 2, 2020
On August 8, 2020, President Trump issued a presidential memorandum ordering the deferral of
individual payroll tax obligations from September 1, 2020, through December 31, 2020. The deferral is
for employees with biweekly compensation of general y less than $4,000. The memorandum directed the
Secretary of the Treasury to issue guidance to implement this policy. On August 28, 2020, guidance was
provided in IRS Notice 2020-65. A September 2, 2020, letter to the Government Accountability Office
(GAO) asks for an expedited determination if the guidance in IRS Notice 2020-65 constitutes a rule
according to the Congressional Review Act in an effort to force a congressional vote to overturn the
deferral.
This Insight discusses the individual payroll tax deferral outlined in the memorandum, compares this
order to the business payroll tax deferral provided in the Coronavirus Aid, Relief, and Economic Security
Act (CARES Act, P.L. 116-136), and addresses questions related to potential economic effects.
What individual payroll taxes are affected by the order?
The presidential memorandum orders deferred collection and payments of the employee portion of the
Old Age, Survivors, and Disability Insurance (OASDI) payroll tax, also known as the Social Security
payroll tax. The Social Security trust funds are financed by a 12.4% payroll tax on wages up to the
taxable earnings base ($137,700 in 2020). The tax is split equal y between employers and employees,
with each paying 6.2%. Self-employed individuals pay both the employer and the employee share, or
12.4%. The deferral is applicable to employees with less than $4,000 in wages during the biweekly pay
period (or equivalent amounts with respect to other pay periods). The deferral applies to the railroad
retirement tax attributable to the individual Social Security tax. The memorandum and IRS Notice 2020-
65 do not specify whether the deferral applies to self-employed individuals.
How does the order affect payroll tax collections?
Employers collect the employee portion of the tax by deducting the tax from wages when wages are paid.
Employers typical y deposit payroll taxes with the Internal Revenue Service (IRS) semiweekly or
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monthly, and report employment taxes paid on quarterly federal tax returns filed no later than 30 days
after the end of the calendar quarter. Some employers with smal payrolls may file annual y. Decisions
about withholding of employee payroll tax amounts, and thus decisions regarding participation in
deferral, are made by the employer.
Employee payroll taxes are deferred, not forgiven, by the presidential order. Deferring employee payroll
taxes could result in the deferred tax liability being due after December 31, 2020. The presidential
memorandum did not specify how deferred employee payroll taxes are to be collected, but did direct the
Secretary of the Treasury to explore avenues to eliminate the obligation to pay deferred taxes, including
legislation. Permanent forgiveness would require congressional action.
IRS Notice 2020-65 provides that any deferred employee payroll tax be withheld and paid ratably in the
first four months of 2021, between January 1, 2021, and April 30, 2021. Deferred payroll taxes not repaid
during this period are subject to interest and penalties. The notice provides that employers “may make
arrangements” to collect deferred taxes from employees. The notice does not, however, explicitly address
how employers should handle the deferred employee payroll taxes for employees no longer employed by
the employer during the repayment period.
Administrative concerns and issues not resolved in IRS Notice 2020-65 may limit the scope of employers
opting to defer employee payroll taxes. Stakeholders assert it would be unworkable to implement a
system where employees choose whether or not their employer defers their share of OASDI payroll taxes
from September 1, 2020, through the end of the year. Employers have also expressed concerns about
administrative costs associated with implementing the deferral and concerns about being liable for the
deferred tax liability of employees who have changed jobs. Another concern is that employers may be
liable for deferred employee payroll taxes if employees’ employment terminates before the end of the
repayment period.
How does the individual deferral compare to the CARES
Act deferral for businesses?
The CARES Act contained a delay in payment of employer payroll taxes (as opposed to the employee’s
share of payroll taxes). Specifical y, the CARES Act deferred employer OASDI payroll taxes due between
March 27, 2020, and December 31, 2020. Deferred tax liability is to be paid in two instal ments—with
half of the deferred amount to be paid on or before December 31, 2021, and the remainder due on or
before December 31, 2022. For businesses, the payrol tax deferral was intended to free up cash flow. The
payroll tax deferral is similar to an interest-free loan, which businesses wil presumably repay once
normal business operations resume.
The CARES Act provides general revenue transfers to the Social Security trust funds in the event that the
employer payroll tax deferral results in a loss of revenue. The presidential memorandum does not address
how the employee payroll tax deferral might affect the Social Security trust funds, or specifical y include
any hold-harmless provision.
Is the individual deferral likely to provide economic
stimulus?
There are likely limited economic effects from changing the timing of when individual OASDI payroll
taxes are paid. Delaying payroll tax liability for several months does not provide working individuals with
additional economic resources in the longer term; nor does it change the incentives to work, save, or
invest. Employees employed by employers choosing to defer payroll taxes could see increased take-home

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pay in the near term. However, given the administrative concerns and other unresolved issues, employers
may be hesitant to defer employee payroll taxes, which could mean limited economic effects. Deferral of
employee payroll taxes for federal government executive branch employees is expected, according to the
Agriculture Department’s National Finance Center communication on August 21, 2020. Payroll tax
deferrals do not provide additional resources to nonworking or unemployed individuals. If deferred
payroll tax liability is forgiven, the forgiveness of deferred payroll tax liability could provide additional
fiscal stimulus.
Barry Huston, Analyst in Social Policy, and William Morton, Analyst in Income Security, contributed to
this product.


Author Information

Molly F. Sherlock
Donald J. Marples
Specialist in Public Finance
Specialist in Public Finance






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