President Trump’s plan to defer payroll taxes was set into motion Friday, with the Treasury Department outlining how the executive action would work just four days before the initiative meant to provide an economic boost was set to take effect.
The initiative postpones some payroll taxes that would normally be due between September 1 and December 31 and makes them due between January 1 and April 31, 2021.
Under the plan, which would only apply to workers with an annual salary of less than $104,000, employers are asked to stop withholding the 6.2% payroll tax that represents an employee’s share of Social Security taxes.
Employees would still be responsible for the taxes, just not immediately—that means employers who stop withholding payroll taxes now, would be able to withhold twice as much early next year.
Trump wants Congress to forgive the deferred tax payments, but some employers fear that if they stop withholding taxes without a guarantee the deferred payments will be forgiven, they’ll be stuck with the bill, a particular risk if a worker should leave their employer before 2021, meaning the company won’t be able to deduct it from future paychecks.
Employers can choose whether to opt in to the deferral plan.
Trump’s August 8 executive action temporarily suspending payroll tax collections came as negotiations in Congress deadlocked over a new coronavirus stimulus package. Earlier this month Trump said if he was reelected, he would get rid of the payroll taxes permanently, though White House officials said afterward such a plan isn’t currently under consideration. If Trump were able to permanently cut payroll taxes, and if such a law went into effect on January 1, 2021, Social Security payments would run out by mid 2023, according to Social Security Chief Actuary Stephen Goss.
“The guidance makes it clear the only purpose of this scheme is to give the illusion of a tax cut before the election,” Seth Hanlon, senior fellow at the Center for American Progress, a group aligned with Democrats told the Wall Street Journal.
Trump Administration Begins Payroll Tax Deferral Plan (Wall Street Journal)
Employers Cast Wary Eye on Trump Payroll-Tax Deferral (Wall Street Journal)