Trump’s Payroll-Tax Deferral Plans Spur Confusion
le 13 August 2020
President’s temporary change to Social Security tax collection poses challenges, uncertainty to employers
By Richard Rubin – The Wall Street Journal
President Trump’s gambit to defer Social Security payroll taxes for the rest of the year and pressure Congress into forgiving them is turning into a logistical challenge, with its rollout complicated by his own unclear statements about the plan.
The Treasury Department faces continued pressure from businesses about the difficulty of implementing the idea. And since Mr. Trump unveiled the concept, he has repeatedly described his own administration’s plans in a way that suggests he is seeking a much more sweeping elimination of the tax.
“We’ll be terminating the payroll tax after I hopefully get elected,” he said at the White House on Wednesday, following two similar comments during the weekend about making payroll tax cuts permanent. He then said the government could use general taxes and strong economic growth to cover any shortfall in the Social Security trust fund, which is largely funded by the payroll tax.
White House officials said Sunday, Tuesday and again late Wednesday that Mr. Trump isn’t saying he wants to terminate the entire payroll tax. Instead, they say, he is proposing something much more modest: forgiving any payroll taxes that get deferred this year as a result of the executive action.
As part of a series of executive actions rolled out Saturday, the president ordered Treasury Secretary Steven Mnuchin to allow the deferral of the 6.2% payroll tax on employees from Sept. 1 through Dec. 31 for workers making less than about $104,000 on an annualized basis. He then wants Congress—where lawmakers in both parties have been reluctant to approve a payroll-tax cut—to forgive those taxes permanently.
If employers participate, the temporary payroll tax cut sought by Mr. Trump could reduce federal revenue by about $100 billion this year. All payroll taxes, including those for Medicare, were $1.2 trillion in 2019. That’s 5.9% of gross domestic product last year and more than one-third of federal revenue.
The administration can delay payment deadlines, but only Congress can cut taxes. As during a 2011 payroll-tax cut passed by Congress and signed into law under President Obama, the government could use general-fund money to cover the gap from any missing taxes from the final four months of this year.
Mr. Mnuchin has legal authority to delay tax deadlines after presidentially declared disasters. But the mechanics of delaying these taxes will be difficult. Employers are wary of administrative costs and of assuming liability for the taxes of employees who leave their jobs.
Mr. Mnuchin said on Fox Business on Wednesday morning that he would try to create certainty to encourage employers to stop withholding Social Security taxes and increase take-home pay. He said, however, that he couldn’t force them to do so. Employment-tax lawyers say companies are going to be reluctant to stop withholding taxes from paychecks.
In a Wednesday letter to Mr. Mnuchin, the U.S. Chamber of Commerce, the largest business lobbying group, said it had serious concerns about implementation and raised questions about how to handle seasonal workers, bonuses, fluctuating salaries and the mechanisms for repayment.
“The uncertainty raised by these issues, as well as myriad other issues not enumerated here, only exacerbates the challenges faced by payroll processors and compliance departments who are already struggling,” wrote Caroline Harris, the group’s chief tax-policy counsel.
The Treasury Department hasn’t yet released formal rules for the payroll-tax deferment, and employers can’t act until it does.
The American Institute of Certified Public Accountants sent its own requests to the Treasury Department this week. It suggested that employees who want their taxes deferred be responsible for making an affirmative election to ask their employers to stop withholding.
The group also asked the government to say that employers, not employees, should be responsible for any unpaid deferred taxes. The tax code makes employers and employees liable.
Mr. Trump’s statement that he wanted to terminate the payroll tax has fueled attack ads from Democrats, who have highlighted the link to Social Security benefits that retirees rely on.
Joe Biden’s presidential campaign quickly released an ad aimed at Florida voters highlighting Mr. Trump’s comments about Social Security. The state’s older voters are a crucial bloc in the swing state.
“Make no mistake: President Trump just told America he plans to defund Social Security,” Senate Minority Leader Chuck Schumer (D., N.Y.) said Wednesday on Twitter.
The Republican National Committee countered that Mr. Biden defended the Obama-era payroll-tax cut, noting that the then-vice president wrote in a 2011 opinion article that the cut wouldn’t affect Social Security because funds would be transferred from the federal government’s general fund.