CARES Act, Update, Withholding

Executive What?

Now that Congress is out of session for their summer vacation, the President left some notes for his Cabinet before he, too, left the White House. Leaving all politics aside, let’s dive in to the notes that were passed after class.

Click on the title to read each item directly on the White House website:

Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters & Homeowners

Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic

Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019

Before we get too far along, let’s get on the same page. You will notice we have two different types of Executive documents that were all signed on August 8, 2020.

The first one is an Executive Order, which has the force of law IF the topic of the order is “founded on the authority of the President derived from the Constitution or statute.” In other words, the President has the authority to write an Executive order, but must present laws and statutes giving the power to enforce such action to the President. This is an important feature within the checks and balances created within the Constitution. Once the Executive order is written, Congress also has the power to challenge any Executive order and request that the Supreme Court review the authoritative law.

The rest of the notes are all Memorandums, which are similar to Executive orders but not equal. The President can use Memorandums to “direct government operations.” Memorandums do not have the force of law and there is no requirement that Constitutional authority be proven. You will notice that each of the Memorandums listed above have a specific cabinet member that is being addressed and asked to research authority and statutes to solve a problem. These Memorandums do not have effective dates or policy standing, they are simply public instructions given to specific government officials.

Let’s dive in!

In an effort to help renters and homeowners who are still being impacted by COVID-19, the President signed the Executive Order on Fighting the Spread of COVID-19 by Providing Assistance to Renters & Homeowners on August 8, 2020. A quick read through the document gives very few details on specific timeframes or parameters for relief. It does direct The Secretary of Health and Human Services & the Director of the CDC to “consider whether any measures temporarily halting residential evictions for failure to pay rent are reasonably necessary to prevent the further spread of COVID-19 from one State or possession into any other State or possession.” The HUD Secretary is further directed to evaluate what Federal funds and programs may be available as well as work within the current laws to find any supplemental programs that may assist in minimizing evictions and foreclosures.

In summary, this note was passed to the HUD Secretary and told them to work within the parameters currently established to find a way to help, if the Director of the CDC agrees such actions would prevent the further spread of COVID-19.

The next note was passed to Ms. DeVos, the Secretary of Education. In the Memorandum on Continued Student Loan Payment Relief During the COVID-19 Pandemic, the President reminds the Secretary of Education that the CARES Act payment relief deadline is September 30th. The President then directs the Secretary to “take action pursuant to applicable law to effectuate appropriate waivers and modifications to the requirements and conditions of economic hardship deferments” that are currently in place and make the deferment and 0% interest rate stick until December 31, 2020. Again, no specifics are given. The Memorandum simply gives guidance on what the President would like to have happen.

Now for the much-anticipated Payroll Tax note. The Secretary of the Treasury received the Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster. Did you catch that wording? The President has directed the Treasury Secretary to use his authority to DEFER the withholding, deposit and payment of the 6.2% FICA-SS tax during September 1, 2020 thru December 31, 2020. There are some other stipulations of course. The first is the wage limit, pre-tax earnings of not more that $2,000 per week, and the second is that this deferment would not incur penalties or interest. This may sound like a really great idea to help out those of us who are working, but the word defer has me a little on edge. Let’s take a look at the math and the potential downfall.

If I make right up to the limit on the income, $1,999 per week, I will not have to pay the 6.2% Social Security tax that is normally withheld by my employer. That is $123.94 per week. That would be great! I would love to have an extra $100 in my paycheck, but with the word defer is an ominous foretelling of things to come. January 1, 2021 rolls around and I have joyously spent my “extra” income on food deliveries and amazon shopping, the cumulative amount of “extra” money is $2,106.98, and the meaning of the word defer comes full circle. I now have an outstanding tax liability of $2,106.98 and no cash to pay. (Side note – this tax is only assessed to wages; this will not affect the withholding taxes on unemployment benefits)

The Treasury Secretary has been instructed to issue guidance on how this deferment would happen as well as how to find a way to forgive all of the deferred taxes. Again, there are no specifics of how this will happen or when. Questions abound with this one, can you opt out?  What about employer matching? When we will we have to pay the piper? You may want to pay close attention to this one on the U.S. Department of Treasury website.

Last, but certainly not least, is our note to the Governors the Memorandum on Authorizing the Other Needs Assistance Program for Major Disaster Declarations Related to Coronavirus Disease 2019. This note is written to the Secretary of Labor, the Secretary of Homeland Security, and the Administrator of the Federal Emergency Management Agency. The President is requesting these agencies work together to ensure that the remaining $150 billion in combined federal disaster aid that has not been spent by the States be put toward paying out additional unemployment benefits through December 6, 2020.  The idea within this Memorandum is that the States use the money that they have already received and request more from FEMA if necessary, to supplement an additional $300 in benefits to be paid out.

Now before you start yelling about the unemployment being $400 instead of $300, take a minute to read Section 4(c): “ In exercising this authority, the Secretary, acting through the FEMA Administrator, shall, subject to the limitations above, approve a lost wages assistance program that authorizes the Governor to provide a $400 payment per week, which shall reflect a $300 Federal contribution, to eligible claimants from the week of unemployment ending August 1, 2020.”

In order to qualify for the additional $300 in federal benefits, you must be receiving at least $100 in State Unemployment Benefits. The alphabet soup of types of benefits that qualify for the additional $300 include, UCX, PEUC, PUA, EB, STC, TRA, and SEA. If you get bored, you can find the definition of each acronym in the link to the Memorandum at the beginning of my post.

Now we wait… directions have been given and now the agencies will do their things, which means interpret the instructions and make the rules.

After all of that, we are still in the dark about what the next steps will be for each one of these issues. We are reminded that the President’s power is limited by Congress and that Congress is currently not in agreement on many issues. At least with everyone out of town, we will get a break from the updates on what is not happening. Enjoy your congressional vacation!


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