President Trump's COVID-19 Executive Orders on Unemployment and Payroll Taxes: More Questions than Answers

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To what extent may unemployment benefits be enhanced and payroll taxes be deferred, as a result of President Trump’s recently issued Executive Orders? Issued on August 8, 2020, the Orders and related Memoranda to Cabinet and Executive Agency leaders seek to extend COVID-19 relief measures to individuals and businesses by reviving prior Congressionally authorized relief measures under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. Two of the Orders provide for partial continuation of enhanced unemployment benefits ($400 weekly) and suspended payroll tax collection. This executive branch action, however, leaves much to government agency heads in terms of implementation. Additionally, it will likely require some congressional agreement in terms of financial appropriations, as well as significant collaboration from state governments, to yield any meaningful results.

$400 Unemployment Weekly Benefits, To Be Funded by FEMA and States

In his “Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019,” the President directed the Secretary of Labor, the Secretary of Homeland Security, and the Administrator of the Federal Emergency Management Agency (“FEMA”), to supplement unemployment payments to certain eligible claimants up to $400 per week. The supplemental weekly payment is available until December 6, 2020, or until the $25 billion allocated by the President is depleted.

As noted in our July 31, 2020 blog, the $600 weekly unemployment benefit enhancement provided under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act expired on July 31, 2020, due to lack of Congressional authorization for a further extension. Acknowledging the continuing financial crisis for many Americans, the President directed FEMA to provide for continued benefits from the Department of Homeland Security’s Disaster Relief Fund, at this lower $400 weekly amount.

Qualification for the weekly $400 payments requires both 1) the worker’s receipt of at least $100 per week in regular state unemployment benefits, and 2) the worker’s certification that lost wages are due to disruptions caused by COVID-19. Additionally, rather than 100% federal funding authorized under the CARES Act, the President’s Memorandum provides for 75% ($300) from federal funding and a 25% ($100) match from state governments, if the state governments agree to such funding match and if other steps are completed as identified below.

Employee Payroll Tax Deferral, Under Certain Conditions

In his “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” the President directed the Secretary of Treasury to temporarily defer the collection and payment of certain payroll taxes from compensation paid between September 1, 2020 and December 31, 2020. The directive applies to the withholding, deposit, and payment of the 6.2% employee share of social security tax (but not Medicare tax) on wages or compensation paid.[1] But such deferral is available only if the employee’s “wages or compensation . . . payable during any bi-weekly pay period is generally less than $4,000, calculated on a pre-tax basis, or the equivalent amount [during] other pay periods.” This threshold limitation translates to taxable wages of approximately $104,000 in 2020. Amounts deferred will be without penalty, interest, additional amounts, or additional tax.

Notably, the Memorandum further directs the Treasury Secretary Mnuchin to issue guidance to implement the Memorandum and even to find ways to eliminate the deferred tax entirely. In the event Treasury Secretary Mnuchin does not eliminate the deferred tax entirely, affected employees will ultimately be required to pay the deferred tax, which has raised a number of questions. For instance, when and how must the deferred tax be paid? Will the deferral be required, or may employees “opt out,” given the prospect of having to pay at a later date? Treasury Secretary Mnuchin has until September 1, 2020 to provide guidance.

If, When, and Otherwise Limited

At this time, the above Presidential Executive Orders are not operational.[2] In fact, they expressly disclaim creation of “any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.” The relief directed is additionally subject to the availability of financial appropriations. They also may be challenged through litigation, since the appropriations are not sought through legislative means as normally required for tax-related expenditures and relief.

It thus remains to be seen if, how, and when these measures will serve those affected by the COVID-19 pandemic, especially in light of the anticipated challenges to the constitutionality of the President’s assertion of executive power. What is clear, however, is the lack of immediate relief or concomitant employer-side responsibilities for nonprofits, at least until the relevant Agency heads weigh in and issue guidance to implement the President’s Executive Orders. In the meantime, workers should not necessarily expect another $400 weekly benefit or to stop paying their employee-side payroll taxes. As with all things COVID-related, be careful and stay tuned for further legal developments.

[1] As we reported in our March 27, 2020 blog article and per the CARES Act, employers are also able to defer payment of the employers’ 6.2% share of social security taxes through December 31, 2020, with repayment owed over the following two years.  Such deferral is not available, however, for employers who have received Paycheck Protection Program loan forgiveness.

[2] President Trump’s two other Memoranda are likewise not operational at this time. In a third Memoranda directed to the Secretary of Education, the President called for extension of student loan payment deferment and reductions of student loan interest rates to zero until December 31, 2020. A fourth Memoranda directs the Secretary of the Treasury, the Secretary of Housing and Urban Development, and the Director of the Federal Housing Finance Agency to identify or review authorities and resources that may be implemented to provide temporary financial assistance to renters and homeowners and prevent evictions and foreclosures resulting from financial hardship caused by COVID-19.