In advance of a new stimulus package agreement, the White House issued an executive order and three memoranda over the weekend. This executive action is said to provide economic relief during the current recession caused by the coronavirus. Here are the details.
- Delays payroll tax collection for those making under $104,000
The White House instructed the U.S. Treasury to halt collection of payroll taxes from Sept. 1 through Dec. 31 for workers who earn less than $4,000 every two weeks (that’s people earning under about $104,000 a year).
This will feel like a tax cut for a few weeks because workers will end up with larger paychecks while the tax is not collected. But it is technically a tax deferral, meaning the taxes will still be due at a later date. The president called on Congress to make the tax deferral a permanent tax cut, as that will require action from Congress.
Payroll taxes help pay for Social Security and Medicare. The White House is attempting to postpone the 6.2 percent tax that employees pay in every paycheck for Social Security. Employers are also required to contribute another 6.2 percent for each employee.
Congress already deferred most employer payroll taxes for the rest of 2020, so the White House is now attempting to defer workers’ payroll taxes. This relief only applies to people who are working and collecting a paycheck, and it is only temporary since the taxes must still be paid. If the taxes were not repaid, it would lower the funds in the Social Security Trust Fund.
- Unemployment aid is extended at $400
The United States currently has more than 30 million people on unemployment aid. They had been receiving an extra $600 a week from the federal government on top of their state aid (which averaged $330 a week), but Congress set the federal funding to expire at the end of July. Democrats want to continue at the $600 a week level; Republicans proposed $200. They have yet to agree.
The presidential memo calls for federal aid to restart at a level of $400 a week. The federal government, however, is only paying $300. States are expected to contribute the other $100. Due to COVID-19, however, many states are struggling and there’s concern over whether or not they will participate.
To pay for the federal portion of the increased unemployment payment, the White House is calling for $44 billion of funding from the Department of Homeland Security’s Disaster Relief Fund that is normally used for hurricanes, tornadoes and fires to be shifted over to unemployment.
This executive action could be challenged legally since the Constitution gives Congress control over federal spending. On top of legal questions, $44 billion would cover less than five weeks of payments for 30 million unemployed Americans, unless the number of people on unemployment falls dramatically.
- Evictions: Protections have not been renewed yet
The United States has about 110 million renters, and many have been hit hard by the layoffs in retail, restaurants and hospitality during the pandemic. The CARES Act banned late fees and eviction filings until July 25 on properties backed by federal mortgage programs — like Fannie Mae — or those that receive federal funds like HUD.
The executive order, however, does not ban evictions. Instead, it calls for Health and Human Services Secretary Alex Azar and Centers for Disease Control and Prevention Director Robert Redfield to “consider” whether an eviction ban is needed.
The order also doesn’t specify if it will provide financial assistance to renters. Instead it calls for Treasury Secretary Steven Mnuchin and Housing and Urban Development Secretary Ben Carson to see if they can identify more funds for this purpose.
According to report, there could be 30 million to 40 million renters at risk of eviction in the coming months. That compares with an average of 3.6 million evictions a year before the coronavirus pandemic.
- Student loan payments are deferred until Dec. 31
The final memo waives all interest on student loans held by the federal government through the end of 2020 and allows people to delay payments until Dec. 31.
But the debt is not canceled forever. Principal payments are due on Dec. 31 and full payments are slated to restart Jan. 1.
What happens next?
There will likely be court challenges to the White House’s actions, making it unclear how quickly any money would reach the unemployed. On top of that, it’s unclear how many states will want to participate in this enhanced unemployment program or how many companies will want to suspend payroll taxes for employees only to have to pay them in 2021.
Next Round of Stimulus
With the executive orders addressing a payroll tax cut, enhanced employment benefits, evictions and student loan relief, will there be a new stimulus package? The expectation is yes. It still will take a deal in Congress to pass a broad economic aid package that would substantially address the needs of small businesses, renters, unemployed workers and more.
Congress still needs to agree on a bi-partisan stimulus bill. In the Heals Act, Senate Republicans proposed a ~$1 trillion stimulus package, which is $2 trillion less than the Heroes Act, which House Democrats say would cost ~$3 trillion.
Despite missing their self-imposed deadline and the August congressional recess, negotiations continue.
Stay tuned as we will update you both by e-alerts and webinars as information on the next round of Stimulus and PPP changes become available. Our next webinar on PPP Loan Forgiveness will be held Wednesday, August 19, 2020 from, 3:00-4:15 p.m. REGISTER. In the meantime, please contact us with your questions and concerns at 847-267-9600 or info@waradydavis.com.
You can also visit the Warady & Davis LLP COVID-19 Resource Center for a wealth of information on stimulus assistance, new legislation and much more. This information is updated regularly. This is a rapidly evolving situation so please do not hesitate to reach out to us; we are here to help.
SOURCE: www.whitehouse.gov