President Donald Trump issued an executive order Aug. 8 enabling the U.S. Treasury to defer the withholding and payment of certain payroll tax obligations for employees whose bi-weekly pre-tax compensation is less than $4,000 or the equivalent for other pay periods. This provides employers the option to suspend collection of the FICA payroll taxes of 6.2% for eligible employees for the period Sept. 3- Dec. 31, 2020, and it requires that any deferred taxes be repaid during the pay periods Jan. 1-April 30, 2021.
The UA System has sought expert external advice on the matter and as a result is choosing to refrain from making changes at this time, given that the program appears to be optional rather than required for employers. Among the reasons:
- It’s a deferral, not forgiveness, and only for one quarter; therefore, for payroll taxes for affected employees would be essentially doubled in the first three months of 2021.
- The logistics of implementing differential payroll reductions for employees with variable (hourly) compensation for a time-limited period are difficult, expensive and error-prone.
The UA System will continue to monitor developments and review federal guidance as it becomes available.