President Donald Trump's tax deferral program might benefit workers, but is raising questions for employers and employees alike
There's a chance you and I might bring home more money when we get our first paychecks after Sept. 1, and it all depends on the outcome of a presidential directive.
Numerous questions remain weeks after President Donald Trump directed the U.S. Treasury Department to develop a program to defer the collection of certain payroll taxes from workers who make $4,000 or less in a biweekly pay period.
Would the deferral initially apply to wages earned prior to Sept. 1 and are paid for after that date? Or, would it apply only to wages we earn between Sept. 1 and Dec. 31?
Will the deferral, which specifically involves Social Security Tax withholdings contributed to the U.S. government (6.2% of our gross pay) every time we get a check, eventually become a permanent elimination of that tax?
If the answer to that question is no, then how will you and I pay that back? After the first of the year, will we see our Social Security tax withholdings climb? Will we just be required to repay what we owe when we file our 2020 income taxes in April? Or, will we have to repay those deferred taxes entirely out of a check paying us for our first earnings in 2021?
And who will be responsible for repaying what we owe? Could our employers be on the hook for that, rather than us?
Also, will our employers’ participation in the deferral program be mandatory, or could yours or mine choose to opt out and not participate?
After Trump’s executive order, business owners are asking those questions and others. There aren't answers for every question, and it's leaving employers confused.
But for now, it appears the executive order is only directing Treasury to allow for a deferral of those tax payments, meaning they will have to be repaid, attorneys Lisa Molsbee and Brock Pittman of the Christensen Law Group said.
“The executive order directed, however, the Secretary of the Treasury to explore avenues to eliminate the tax obligations that are deferred,” including potential legislation that Congress could approve, Pittman added. “If no resolution is found by year end, employees will likely find themselves seeing larger deductions come January, or be liable for (what they didn’t pay) when they file their income taxes in 2021.”
Pittman said the question about who will be obligated to repay deferred Social Security taxes is one Christensen clients are especially concerned about.
If that obligation falls on an employer, would the company still be obligated to return those dollars to the Treasury Department if an employee no longer worked there?
“While we have that executive order, there are other federal statutes that require the withholding that are still in play, so there are some conflicts of law involved,” Pittman said. “It is hard to advise our clients right now because the executive order raises more questions than it answers. We will just have to wait and see if Congress or Treasury keeps it as just a deferral or makes it into something that is more permanent.
“If it goes like it did with the CARES Act, we will probably see a situation where guidance is rolled out periodically as the issues are tweaked,” Pittman said.
Attorney Tony Mastin, a former executive director of the Oklahoma Tax Commission who practices at McAfee and Taft, agreed.
“I think it is a fair statement to say employers are confused as they are waiting on that guidance,” Mastin said. “Who pays the tax and when it must be repaid are questions that are leaving employers trying to understand what this all means.”