On August 8, 2020, President Trump signed four documents—three Presidential Memoranda and one Executive Order—aimed at directing further COVID-19 relief. Two of the memoranda related to unemployment assistance and deferred payroll taxes are notable for employers, even though their ultimate impact remains to be seen. The other two documents provide for student loan relief and consideration of measures to assist renters and homeowners from COVID-19 related financial hardships.
In March, the CARES Act created the Federal Pandemic Unemployment Compensation Program (FPUC), which provided an additional $600 per week to individuals collecting regular unemployment compensation benefits. The FPUC payment was available for weeks of unemployment ending on or before July 31, 2020. In its place, the President’s Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019 directs the Federal Emergency Management Agency (FEMA) to assist in providing additional unemployment benefits through the Lost Wages Assistance Program.
The directive provides up to an additional $44 billion dollars in federal funding for lost wage assistance, to be supplemented with state funds. The Program would provide up to a $400 weekly payment to eligible claimants, $300 of which would come from the federal government and $100 from the state. The state must request a grant for lost wages from the FEMA Administrator, agree to the cost-sharing requirement, and deliver the financial assistance through the state’s unemployment insurance system.
To be eligible for enhanced benefits, claimants must certify that their unemployment or partial unemployment is due to disruptions caused by COVID-19 and must receive, independent of the Lost Wage Assistance Program, at least $100 dollars in unemployment compensation (increased from $1 required under the CARES Act) through one of the following:
- Unemployment compensation, including Unemployment Compensation for Federal Employees and Unemployment Compensation for Ex‑Service members;
- Pandemic Emergency Unemployment Compensation under section 2107 of the CARES Act;
- Pandemic Unemployment Assistance under section 2102 of the CARES Act;
- Extended Benefits;
- Short-Time Compensation;
- Trade Readjustment; or
- Payments under the Self-Employment Assistant program.
The Lost Wage Assistance Program will be available for the week of unemployment ending August 1, 2020, until the balance of federal funding reaches $25 billion or for the week of unemployment ending December 6, 2020, whichever occurs first.
There are significant impediments to the states implementing these benefits. First, many states are facing dire fiscal circumstances and may not be able to fund 25 percent ($100 per week per claimant) of the benefits. The states have asked Congress to provide $500 billion in funding to help them balance their fiscal year budgets. Second, only claimants in states that enter into an agreement with the federal government will receive the wage assistance, which requires the states to implement new administrative systems to pay the benefits which, according to some, may take months.
Payroll Tax Deferral
President Trump’s Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster instructs the Secretary of the Treasury “to defer the withholding, deposit, and payment” of the employee share of the Social Security Tax (imposed at a rate of 6.2 percent on an employee’s wages up to $137,700 and collected/remitted to the IRS by employers) for wages paid between September 1, 2020, and December 31, 2020. This deferral applies to employees whose pay “generally” is less than $4,000 biweekly, or about $104,000 annually, but does not provide guidance as to how this should be calculated. The order also instructs Treasury to issue guidance implementing the memorandum. On August 12, Treasury announced that the deferral will not be mandatory for employers.
The memorandum provides only that the tax is deferred (not abated) without any interest or penalties. This means that, although the tax may not be withheld from certain employee’s pay for the period September 1, 2020, through December 31, 2020, it is not clear when those taxes actually must be paid. Although the memorandum directs Treasury to “explore avenues” to abate the tax, absent Congressional action, the taxes will be due and payable at some point in the future.
Generally, if an employer fails to withhold and pay over Social Security Tax from an employee, the employer itself is liable for the tax. Absent guidance, employers would be liable for any Social Security Tax not withheld that it cannot withhold in the future from an employee’s pay. In addition to the memorandum and any guidance issued by Treasury, employers must also consider state law concerns: Must an employee consent to withholding if an employer no longer is required to withhold? Must an employee consent to excess withholding to make up for the deferred tax? Can an employer collect the deferred taxes from an employee who has left its employ?
Finally, the memorandum does not apply to the 1.45 percent Medicare tax, which also is withheld from an employee’s wages, and is silent on whether it applies to self-employment taxes as well.
Hopefully, Treasury will issue guidance promptly to answer the relevant questions to enable employers and employees to determine how to proceed.
Evictions and Student Loans
In the Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic, the President directed the Secretary of Education to continue student loan payment relief during the COVID-19 crisis for certain federal student loans held by the Department of Education. To read about this memorandum, see our Consumer Finance Monitor posting here.
Finally, in his Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters and Homeowners, the President directed the Secretary of Health and Human Services and the CDC Director to consider whether any measures temporarily halting resident evictions of tenants for failure to pay rent are reasonably necessary to prevent the spread of COVID-19. It further directed the Secretaries of the Treasury and Housing and Urban Development to identity available federal funds to provide temporary financial assistant to renters and homeowners struggling to meet their financial housing obligations due to COVID-19.
Ballard Spahr Labor and Employment and Tax attorneys are closely following these and other developments related to COVID-19 as they impact the workforce.