Payroll Tax Deferral Confusion for Business Owners

On August 8, 2020 President Trump issued an Executive Memorandum allowing employees who make less than $104,000 per year to defer their payroll tax withholding starting September 1 through the end of 2020. The intent was to keep more money flowing through the economy to counteract the economic impact of the coronavirus pandemic and to encourage people to get back to work rather than not working and collecting unemployment benefits. The coming financial problems for state run Unemployment Insurance (UI) systems has yet to be understood.

The business community is waiting for guidance from the Treasury Department to implement this policy. Secretary of the Treasury, Steve Mnuchin, has stated that participation will be voluntary and employers can choose not to allow their employees to take advantage of this payroll tax withholding deferral. Larry Kudlow the President’s economic advisor, has stated that the President is looking for ways to “fully forgive” the payroll tax deferral however no instructions have been forthcoming in writing from any US Government entity.

Employers are concerned that they will ultimately be responsible for the repayment of the payroll tax deferral. Federal tax law and IRS regulations make it clear that the employer is liable for unpaid payroll taxes. Many organizations that represent businesses providing financial and accounting services are seeking clarity on their responsibilities and those of their clients and constituents to collect and remit payroll tax withholdings.


On Friday, 142 House Democrats sent a letter to President Trump demanding he reverse his ”recent executive action on Social Security payroll taxes and abandon your call to defund Social Security by eliminating the payroll tax permanently.” Now it’s a political spin zone.

Since PEOs are considered the employer of record for their clients there is legitimate concern in the PEO industry that they may be held liable for unremitted payroll taxes of worksite employees of their clients. While some rules are still yet to be resolved, all current PEO clients should contact their PEO for guidance on how to proceed in this situation.

Small Businesses Have Never Needed a PEO relationship more

The COVID pandemic has hammered the economic climate for small and medium sized business in 2020. Aside from the general business climate deterioration, the impact in the area of workforce administration continues to be a landscape of confusion and change. PEO services have never been more valuable for their small business clients. Let us help you find the right PEO for your company.