Executive Orders Social Security Withholding and Unemployment Compensation Benefits

(August 11, 2020)

On August 8, 2020 President Trump issued two Executive Orders that impact employees and benefits that can be received by former employees.

I. Social Security Taxes

One involves deferral of the employee portion of Social Security taxes. The Order directs the Secretary of the Treasury to issue guidance that in effect defers the withholding and payment of those taxes from September 1, 2020 through December 31, 2020. This applies only to employees who are paid less than $4,000 per bi-weekly payroll, or equal to $104,000 per year.

The Treasury Department is expected to issue guidance soon, given the September 1st start date. We will of course look to receive the guidance.

A legal challenge is also widely expected. And other questions remain, such as whether the deferred taxes will ultimately be forgiven. That is not known at this time.

For now, employers should prepare to stop withholding the employee portion of such taxes effective September 1, 2020. We also recommend preparing a communication to employees that explains the program and its temporary nature. The basics can be described now but of course may need to be revised once the guidance from Treasury is received.

II. Unemployment Compensation Benefits

Another Executive Order addresses unemployment compensation benefits. In essence the Order authorizes the Federal government to use disaster relief funds to assist States who meet certain requirements with providing enhanced benefits. If the governor of a State requests the assistance, and promises to administer the program consistent with the requirements of the Order, which include twenty five percent participation in funding by the State, then the State can receive the funds. The enhancement would provide an additional $400 per week in benefits for persons who lost their job for COVID -related reasons from the week ending August 1, through December 6, 2020.

Democrats and commentators have raised questions over the constitutionality of this Order in particular. Congress generally has the ability to pass a budget and direct how funds are spent. Some suggest that ordering the use of funds in this manner oversteps presidential authority. It remains to be seen whether this Order will also be challenged in court or whether a legislative solution will be sought. For the time being, it is in place.

Stay tuned and expect more Alerts as matters develop.