President Trump’s unilateral decision to defer Social Security payroll taxes through the end of the year is setting employers up for a major headache and workers up for a shock come January. …
President Trump’s unilateral decision to defer Social Security payroll taxes through the end of the year is setting employers up for a major headache and workers up for a shock come January.
Beginning on Tuesday, Trump’s executive order directs U.S. employers not to withhold 6.2 percent of their employees’ paychecks to cover their workers’ share of the Social Security payroll tax. Social Security is currently funded through a 12.4 percent tax on payroll, with the employer and employee each paying half the bill. It’s up to employers to withhold the employees’ share of the tax, which is then paid in on a monthly basis in most cases.
The impact of Trump’s order is unclear, in part because the administration, as usual, has provided little guidance about how the order is likely to work. Already, major business groups, including the U.S. Chamber of Commerce, have described the order as unworkable and many business owners are unlikely to actually comply with the order, and for good reason.
The order, after all, simply offers a deferral of the payment of these taxes. Under the order, the taxes will become due in January. If employers follow the order and don’t deduct payroll taxes for the next four months, they will be required to pay all those deferred taxes in January. That will take a much bigger bite out of workers’ January paychecks than they might be expecting.
Their Social Security tax alone would slice off more than a quarter of their January take-home, putting the hurt on the millions of Americans who live paycheck-to-paycheck at a time when we’re still likely to be dealing with the effects of the COVID-19 pandemic.
Seasonal employees, like construction workers, particularly in Minnesota, where workers are typically on layoff much of the winter, could be especially hard hit by being forced to repay those taxes at a time when their incomes are already much reduced.
But employers have worries of their own. Trump can’t forgive the taxes at some later point. Only Congress can do that. If they stop withholding taxes without any guarantee that Congress will act (and at this point, Congress has indicated no interest in doing so), they could find themselves on the hook. That’s a particular concern in cases where employees leave in the interim, making it impossible for employers to recover those tax dollars from subsequent paychecks. While, technically, it would be the employee who owes the tax, many tax experts believe that the Internal Revenue Service will seek to recover the money from employers, instead. So far, the IRS has given no indication how it will seek to recover such funds.
Trump says he’ll try to get Congress to forgive all the money, if he’s re-elected, but that’s just another idle Trump promise. If Trump isn’t re-elected, and actually leaves office, he won’t much care about the mess he’s left behind for employers to clean up.
Unfortunately, this is what you get when policy is based entirely on electoral politics. Trump is undoubtedly trying to boost Americans’ paychecks ahead of the November election, hoping that workers will reward him at the polls. Come next year, he’ll either be back in the White House for a second term or dodging lawsuits and possible indictments from prosecutors in New York. Either way, it won’t much matter to him if workers or their employers take it on the chin come January.