September 2020: Lost Wages Assistance and Payroll Tax Holiday Updates

September 2020 Lost Wages Assistance and Payroll Tax Holiday Updates

Just in case you weren’t closely watching the news, August 8, 2020 was International Cat Day and actor Dustin Hoffman’s 83rd birthday. It was the 122nd anniversary of the invention of Corn Flakes and the 51st anniversary of the Beatles’ famous Abbey Road photograph. August 8th was also a busy day for presidential memorada, as President Trump signed two orders that impact our workplaces.

Federal Unemployment Benefit Extension

July 31st saw the expiration of the additional $600 per week in federal unemployment insurance benefit created by the CARES Act, leaving us wondering what might be coming next from Congress. When an extension of the program could not be agreed-upon by legislators, President Trump signed a presidential memorandum authorizing the Federal Emergency Management Agency (FEMA) to direct funds to be used for “lost wages assistance.” $300 per week would be available from the federal government, and an additional $100 per week was to be provided by each state participating in the program.

Governor Newsom has stated that California cannot afford to pay the additional $100 weekly benefit, so unemployment claims dated July 26th forward will be eligible for $300 in additional payments. According to the EDD web site, employees who have filed claims due to COVID-19 do not need to take any additional action to receive the new federal benefit. Payments will begin September 7th and will be issued retroactively to weeks beginning July 26th.

The duration of the Lost Wages Assistance program is unclear, as FEMA granted funding to cover just three weeks of unemployment benefits. Additional disbursements to states may be made on a weekly basis.

Payroll Tax Holiday

The president signed an additional memorandum directing the U.S. Treasury Department to defer the withholding of employees’ social security taxes for the period of September 1st to December 31st, 2020. Guidance on how this would be implemented was not provided until late last week, when the Treasury Department issued a brief, but very confusing, statement. Essentially, employers are permitted, but not required, to pause employees’ social security tax withholdings beginning this month.

However, this is not a forgiveness of tax obligations. Employers would be expected to collect the missed withholding amounts between January and April 2021 and remit them to the IRS along with normal tax payments. Employers could also be on the hook for the missed taxes of employees who leave the company during that “payback” time frame. This program may provide short-term financial relief for employees, but next year may be difficult for all involved.

Employers are encouraged to weigh the pros and cons with their payroll service and/or tax professionals to determine the best response to this program.