Why You Might Not See Cash From a Payroll Tax Cut, Even With Trump’s Executive Order


  • President Donald Trump apparently doesn’t have to wait for Congress to act on a payroll tax holiday. He is pushing one out through executive order.
  • Without certainty that the tax would be forgiven, employers could be reluctant to participate. Instead, they’ll set aside the employees’ share of payroll tax to pay the IRS later, rather than giving the money to employees.
  • Though employers and employees are each responsible for half of the 12.4% Social Security tax and the 2.9% Medicare tax, employers are generally required to withhold and deposit taxes on their workers’ behalf.

Even as President Donald Trump pushes out a payroll tax vacation by means of an executive order, there are no guarantee employees will pocket any money.

Congress has been hashing out the details of the next coronavirus relief bundle, and legislators on both sides of the aisle have been cool to the payroll tax cut concept.

Payroll taxes are shared by employees and companies. Each is responsible for half of the 12.4% tax that funds Social Security and the 2.9% Medicare tax.

Social Security taxes go through an annually changed wage cap ($ 137,700 for 2020), but Medicare taxes continue to apply beyond that threshold.

Trump has stated that he can suspend their collection, and on Saturday, he transferred to make it so as part of a series of executive orders aimed at extending some pandemic relief efforts.

Nevertheless, handing down the cost savings from a payroll tax cut to workers could be simpler said than done, even with executive action, tax experts said.

That’s since while the tax code allows the Treasury Secretary to delay tax deadlines for approximately a year throughout a federal disaster, a simple deferral of the taxes may trigger companies to just keep the employees’ share of levies rather than offering the cash to workers.

“If you’re an employer and [Treasury Secretary] Steven Mnuchin states, ‘I do not require to see that money for a year,’ what do you do?” asked Daniel Hemel, a law teacher at the University of Chicago.

” You could offer it to the staff member, however then a year from now you may be on the hook for the cash,” he said.

Employers’ cold feet

The problem with a deferment by means of an executive order is that there’s no assurance of forgiveness.

Stephen Moore, a member of the president’s financial recovery task force, and Phil Kerpen, president of the Committee to Let loose Success, discussed the problem in an Aug. 2 op-ed in The Wall Street Journal.

“Mr. Trump could likewise promise to sign an expense– now or after the new Congress takes office on Jan. 3– to forgive those payments,” they wrote.

That’s a big “if” for companies.

“Perhaps people will not desire to do it,” said Pete Isberg, vice president for federal government relations at ADP. ” There’s a possibility that Congress will not follow up with legislation that’s consistent with the executive order and forgive the taxes that are postponed.”

Because case, companies’ attorneys will likely encourage them that they are still liable for those payroll taxes, he said.

Lingering monetary discomfort

Distributing those taxes to staff members might be a pricey mistake for employers if the levies are just postponed.

They might have to come up with the cash at a time when their financial resources are still precarious.

“It’s a significant responsibility that in today’s environment would be challenging for employers to presume,” said Michael Trabold, director of compliance risk at Paychex.

Uncertainty over forgiveness may discourage companies from getting involved in the payroll tax cut altogether –– executive order regardless of.

“Something we talked about internally was, ‘Would all employers purchase into it?″ & Prime; Trabold said. “One of the essential credos from the Internal Revenue Service is that the company is constantly responsible for paying the payroll tax.”

An acrimonious environment

The last payroll tax cut that went into effect –– a temporary 2% reduction of the staff member’s share of Social Security taxes –– was gone by Congress and signed into law by President Barack Obama in December 2010. It was in effect for 2011 and 2012.

Such partnership seems unlikely now, specifically as lawmakers concentrate on more immediate types of aid that might assist the millions of Americans who run out work: another round of stimulus checks and enhanced federal welfare.

“The big distinction is that ten years back, Congress passed that payroll tax cut,” stated Hemel. “Here, why would [House Speaker] Nancy Pelosi offer Mnuchin this tax cut?

“If I’m a company, why to be confident that she would do that?” he said. “I think it’s all reliant on Congress true blessing it ex-post, and if they don’t, it’s a disaster for the companies.”

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