With Congress in disagreement on additional economic relief in light of the COVID-19 pandemic, the President signed four executive orders on Saturday, August 8, 2020:
- Deferring payroll taxes for employees making less than $100,000 per year
- Extending student loan payment relief
- Providing additional unemployment relief of $400 per week
- Extending the moratorium on evictions
As these provisions may be subject to legal challenges delaying their implementation, it is difficult to say when these economic measures may be available, despite the indicated effective dates in the orders.
Deferral of FICA and Medicare Taxes
The deferral of payroll taxes is the one item that many may not be fully informed of. It has been often referred to as a “Payroll Tax Cut,” which is not accurate. The Executive Order provides that the deposit, withholding, and payment of the Social Security and Medicare taxes and related Railroad Act taxes would be delayed. This delay would be active for the period of September 1, 2020 through December 31, 2020. Generally, this would amount to 7.65 percent of an employee’s pay. It is limited to employees receiving less than $4,000 bi-weekly, or $100,000 annually.
This is not a tax cut. Instead, the amount is only deferred until the end of the year. Thus, employees or employers will be required to repay these funds at some point in the future, with no additional penalties or interest. One major question is who is responsible for the repayment of these amounts. Is it the employer or the employee? If it is the employee, what occurs if they are unable to repay the funds at the requisite time?
As a result, it is likely that most employers may choose not to reduce the withholding of the applicable taxes from employee pay in the event the employer remains liable for the deferral payments. While the Order does require that the Secretary of the Treasury explore the ability to eliminate the repayment of the deferral, this elimination is not guaranteed. Thus, anyone who receives the benefit of this deferral should prepare for the eventual repayment of these tax amounts.
Extension of Student Loan Payment Relief
A second Executive Order extends previous student loan relief until December 31, 2020. The relief included suspending student loan payments and reducing student loan interest rates to zero percent. It is specifically applicable to Federal Department of Education loans only. Individuals may continue to make loan payments during this time, which will be fully applied to loan principal. Individuals holding student loans from private lenders should contact their lender to determine if this policy will apply to their loans as well before refraining from making payments.
Additional Unemployment Relief of $400
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided an additional weekly unemployment benefit of $600 to unemployed individuals. This benefit expired on July 31, 2020. The President under the Executive Order has directed that an additional weekly unemployment benefit of $400 per week will be provided beginning August 1, 2020 and ending by December 6, 2020, or when the Department of Homeland Security’s Disaster Relief Fund available fund balance is reduced to $25 billion, whichever occurs first. The additional funds are to be paid with $300 coming from the federal government and $100 from the applicable state government.
Extension of Eviction Moratorium?
A fourth Executive Order signed on August 8, 2020 does not specifically extend the moratorium on foreclosure and evictions for federally held single family mortgages, or evictions of renters in federal housing or housing secured by federally backed mortgages for an additional time necessary in response to the public health risks. Instead, it directs federal agencies to determine how they may assist those homeowners and renters facing difficulties.
If you have any questions about the executive orders, please reach out to a member of your Chortek tax team today.
Sources: Whitehouse.gov Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster (posted August 8, 2020); Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic (posted August 8, 2020); Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019 (posted August 8, 2020); Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners (posted August 8, 2020).