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Trump’s Payroll Tax Deferral and How to Handle It

In response to Congress failing to reach an agreement on additional COVID-19 stimulus package, President Donald Trump signed four executive actions on Aug. 8 in hopes of accelerating talks.


One such action was a memorandum for employers to stop collecting the 6.2% levy that is the employee share of Social Security taxes starting Sept. 1 and going through the end of the year. Without Congress’ approval, however, the move doesn’t change how much tax employees and employers actually owe.

Thus, if employers stop withholding taxes without any guarantee that Congress will forgive any deferred payments, they could still be on the hook to pay that money to the Internal Revenue Service.

That fact alone makes employers leery of the president’s memorandum, but there are payroll concerns as well, said Pete Isberg, vice president of government relations at ADP. The payroll deferral is supposed to apply to employees making less than $100,000 per year, or roughly less than 4,000 per bi-weekly paycheck. For many companies, programing their payroll system to account for this sudden change in a matter of weeks is implausible.

“Payroll systems are programmed to literally recalculate with every paycheck to make sure that not only is it 6.2% plus wages, but it goes back through the year to calculate, so there is a year-to-date recalculation that occur, so that would have to be disconnected and revised,” Isberg said.  “There may be some employers that just can’t do it in 2020. Something of this magnitude is usually a six-month workload.”

Lawmakers have criticized the payroll-tax cut for several reasons. They argue that it doesn’t provide much of a hiring incentive, gives too much money to people who already have jobs as opposed to the unemployed and could destabilize Social Security funding.

Employers are waiting for the Treasury Department and the IRS to issue guidance on how to proceed with Trump’s Social Security tax deferral plan. Isberg noted that the action is under code 578a, which is the disaster relief fund. Anything under this code is intended to provide relief for those who can take advantage of it.

“Based on that, our reading of this is employers don’t have to do this, but they should do this if it’s possible and it’s helpful,” Isberg said.

If employers have the capability to enact these payroll changes by Sept. 1, it would provide a boost to many employees’ net income for the year. However, if Congress doesn’t sign off on it, employees could also be asked to pay it back to the IRS in 2021.  

About the Author

Brett Christie Bio Image

Brett Christie is the managing editor of Workspan Daily.

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