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Response to deferral of payroll taxes—executive order

Illinois State University campus from above

At this time, Illinois State University will not be implementing the executive order signed on August 8 deferring the withholding and depositing of payroll taxes. Guidance provided to date is limited, requires repayment of deferred taxes, and did not provide adequate time to accommodate the changes in our systems.

The delay or decision not to implement the deferral of payroll taxes impacts a limited number of Illinois State University employees. A significant number of employees are exempt from Social Security (OASDI) taxes due to the nonresident alien or student exceptions, or participation in the state retirement system exemptions.

In response to the coronavirus (COVID-19) pandemic, President Donald Trump signed an executive order on August 8 directing the U.S. Secretary of the Treasury to defer the withholding, deposit and payment of the Social Security tax for pay dates paid between September 1 and December 31. The deferral does not apply to all payroll taxes; only the Social Security (OASDI) taxes.

It is important to note this program is considered a tax deferral, not an exemption. Employees need to understand a tax deferral is subject to payment at later date.  Guidance issued on August 28, indicates the deferred payroll taxes (OASDI) are required to be repaid to the federal government by the employer between January 1, 2021, through April 30, 2021. Interest and penalties begin to accrue for payments on or after May 1, 2021.

Employers may make arrangements to collect the total applicable deferred taxes from the employee. Employees experiencing increased withholding at the beginning of the year is less than ideal. Historically, the beginning of the year is financially challenging given the holiday season.

Before further consideration related to implementing the executive order, Illinois State University is awaiting further guidance or clarification on:

  • Whether employees may ‘Opt-In’ or ‘Opt-Out’ and how elections should be documented.
  • How employers may collect deferred amounts from employees who terminate prior to the repayment period.
  • How the payroll tax deferral interacts with state and local laws, as well as collective bargaining agreements—this is especially important considering recovery of the deferred amounts will occur next year.
  • Forgiveness of the deferred tax liability.  The administration has been leaning on Congress to forgive the deferred amounts, but it is highly unlikely that Congress will agree to forgive the liabilities.
  • How the deferral of payroll taxes affects reporting obligations to the Internal Revenue Service.

Illinois State University is closely monitoring the situation and will provide faculty and staff with additional information as it becomes available.