Payroll taxes Trump tax plan
Democrats move to stop payroll tax deferral
By Michael Cohn September 08, 2020, 11:29 a.m. EDT 5 Min Read
Democrats on the tax-writing House Ways and Means Committee introduced a bill to overturn President Trump's executive action to defer payroll tax contributions, along with a resolution of disapproval that's being coordinated with Democrats in the Senate.
Last month, Trump signed a memorandum to defer the 6.2 percent employee's share of Social Security taxes from Sept. 1, 2020 until Dec. 31, 2020, but the taxes would need to be repaid by April 30 of next year. The payroll tax deferral only applies to employees with biweekly pre-tax income of less than $4,000, with the goal of stimulating the economy in the midst of the coronavirus pandemic. Trump has said he expects Congress will pass legislation forgiving those taxes, but it's unclear Congress will do that next year, as it may depend on the outcome of the November election who will be in Congress and the White House.
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On Friday, House Ways and Means Social Security Subcommittee chairman John B. Larson, D-Connecticut, introduced the Save our Social Security Now Act with Ways and Means Committee chairman Richard Neal, D-Massachusetts, along with 19 colleagues to overturn Trump's executive action. They also introduced a resolution of disapproval, working in a parallel effort with Senate Minority Leader Chuck Schumer, D-New York, and Senate Finance Committee ranking member Ron Wyden, D-Oregon, to initiate a Congressional Review Act resolution to expedite the vote, asking the Government Accountability Office to review the lawfulness of Trump's executive action. They accuse Trump of using the action as a way of undermining the Social Security trust fund, which relies on payroll taxes.
"Americans are relying on Social Security more than ever during this pandemic," Larson said in a statement. "They need to know that Social Security is secure and will be there for them. Today Chairman Richard Neal and I introduced legislation to block the President's first step in defunding Social Security — his action to defer payroll contributions."
Treasury Secretary Steven Mnuchin has said the money could be made up from the Treasury's general funds, but Larson pointed to other statements from Trump.
"President Trump has repeatedly said publicly that he will terminate payroll contributions altogether if he wins a second term," Larson said in a statement. "His emphatic pledge would defund Social Security and deplete the disability trust fund in 2021, and the retirement and survivor fund in 2023. Eliminating payroll contributions would achieve a long-time conservative goal to eliminate Social Security. It would destroy the financial stability these benefits have provided for generations of retirees, widows, children, and people with severe disabilities. This threat is a blatant attack on the nation's number one insurance and economic support plan for seniors. Democrats and a grateful nation will stand together in defending Social Security, a cornerstone of our nation's social compact, a sacred trust we vow to protect."
Schumer and Wyden sent a letter last week to U.S. Comptroller General Gene Dodaro asking for an expedited ruling from the GAO on reviewing the lawfulness of the executive action under the Congressional Review Act. "President Trump's plan at best gives no help to workers and at worst saddles lower to middle-income Americans with a tax bill the Treasury Department has said will have to be repaid by April next year," they wrote. "Now, after private employers across the country have refused to go along with the Trump plan, calling it unworkable, the administration is forcing hardworking federal employees to take on a huge tax debt starting in 2021 that many can't afford. The Trump administration's Payroll Tax plan will also bankrupt Social Security and endanger the retirements of millions of Americans, as the President himself says he intends to 'make permanent cuts to the payroll tax' if re-elected."
Even though the IRS and the Treasury released limited guidance late last month on implementing the payroll tax deferral, many businesses remain reluctant to implement it, fearing they will be left with the responsibility of paying back the deferred taxes if their employees leave before the end of the year. However, the administration has ordered the federal government to defer payroll taxes from federal employees and members of the military, without giving them the opportunity to opt out. That prompted a reaction last week from the union representing employees of the Treasury Department and the Internal Revenue Service, as well as some other departments in the federal government.
National Treasury Employees Union national president Tony Reardon sent a letter last Wednesday to the Office of Management and Budget asking for more details about the payroll tax deferral and how it will affect the pay of federal employees, noting that so far, information to federal employees about the payroll tax deferral has been incomplete and conflicting.
"They deserve to be fully educated on the impact the executive order will have on their paychecks and family budgets for months to come," Reardon wrote in a letter to OMB director Russell Vought.
He pointed out there hasn't been a single government-wide explanation to educate them on the details, so employees are receiving conflicting notices from various payroll providers about when the deferral starts and how they will be expected to repay the money next year.
Reardon asked the OMB to confirm whether the deferral has already begun for employees in the pay period that began last Sunday, which means their next paycheck on or near Sept. 18 will be affected.
"If that is accurate, federal employees deserve to be informed of that immediately," Reardon wrote.
Under the program, federal employees who earn less than $104,000 a year will stop paying 6.2 percent of their salary toward Social Security for the remainder of 2020, but will be expected to repay those taxes in 2021, unless Congress passes a law to forgive the debt. Reardon said employees need to know how to repay the deferred taxes, whether it's by increased payroll withholdings next year or lump sum.
The NTEU also repeated its request that federal employees or agencies be allowed to opt out of the deferral program, which is a choice that is provided to private sector employers.
"As the largest employer in the country, the federal government is failing in its responsibilities to its workforce by not adequately informing federal employees and explaining the implications and consequences of the payroll tax deferral," Reardon wrote.
On Tuesday, a group of 22 Senate Democrats, led by Sen. Chris Van Hollen of Maryland, plus Susan Collins, a Republican from Maine, called on the Treasury and the OMB to provide more flexibility to federal employees and military service members.
"While some federal employees may want to defer their payroll tax payments," they wrote, "unions representing federal workers have made clear that many others do not."
Michael Cohn
Editor-in-chief, AccountingToday.com
Payroll taxes Trump tax plan Richard Neal Ron Wyden Chuck Schumer Coronavirus