President Donald Trump’s payroll tax holiday began on Tuesday but some employers may balk at offering the temporary relief to employees.
Under Trump’s executive order, employees earning no more than $4,000 every two weeks are eligible for a deferral of the 6.2% tax that is deducted from their paychecks toward Social Security. The tax holiday lasts from Sept. 1 to Dec. 31.
That means an eligible worker making $938 every two weeks will take home a paycheck worth $1,000, or $62 more than usual.
But once the holiday is over, according to IRS guidelines released last week, employers have until April 30, 2021 to collect the deferred tax in addition to the regular deduction.
“Employees are going to notice a reduced net pay in 2021 that’s pretty much equal to the increase they’ll enjoy in the next few months if they take this deferral,” Pete Isberg, vice president of government affairs at payroll giant ADP, told CNBC.
Garrett Watson, a senior policy analyst for the Tax Foundation, said the tax holiday may not be worth the hassle.
“Overall, it is likely that many employers will judge this deferral to be either too complex or impose too much potential liability on their end to be worth taking advantage of, mitigating much of the limited benefit of the deferral,” he told CNET.
Trump said in his order that Treasury Secretary Steven Mnuchin can decide to forgive the deferment but more than a dozen national business organizations wrote Mnuchin last month, saying many of their members “consider it unfair to employees to make a decision that would force a big tax bill on them next year.”
“Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law,” the letter stated.
According to Isenberg, a minimum wage employee who is working full time and earning about $580 per biweekly pay period would lose about half of their paycheck if all the deferred taxes were paid at once.
deferral, Donald Trump, payroll tax, Social Security, Steven Mnuchin
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