Washington – You might see a boost in your next paycheck thanks to President Donald Trump’s plan to defer payroll taxes for the rest of the year.
The bad news is that, under the plan, your paycheck could shrink substantially from January to April of next year as you pay those deferred taxes back.
Frustrated by Congress’ unwillingness to provide a “tax holiday” in any of the five coronavirus stimulus bills lawmakers have approved since March, Trump is using his executive authority to postpone the taxes employees and employers pay to fund Social Security and Medicare. Both workers and their employers must pay 6.2% of a worker’s pay in a tax that supports the Social Security trust fund. Trump has deferred those payments between Sept. 1 and Dec. 31 and makes them due between Jan. 1 and April 30 — unless Congress acts to forgo the payback.
Trump’s plan also defers a 2.9% payroll tax to support Medicare.
The deferral would only apply to workers with an annual salary of less than $104,000 and is voluntary – an employer does not have to agree to defer the taxes.
An analysis by the U.S. Chamber of Commerce found that a worker earning $75,000 a year would receive an additional $179 every two weeks through the rest of this year. But that same worker would owe about $1,610 next year. A worker making $35,000 would get about $83 more biweekly the rest of this year, and owe a little more than $750 next year.
Some employers fear that if they stop withholding taxes without a guarantee the deferred payments will be forgiven, they’ll be stuck with the bill. Another risk employers face is if a worker leaves before 2021, the company won’t be able to deduct what’s owed from future paychecks and may be liable for both the employer’s and employee’s share of the deferred taxes.
The president wanted a much broader plan. Instead of a deferral of the payroll taxes, he wanted forgiveness of those taxes for a much longer period of time. But that would require an act of Congress and both Democrats and Republicans have been cool to the idea.
However, Congress may be more willing to pass a bill that would end the requirement that the deferred taxes be paid back.
Trump has also campaigned on a promise to eliminate the payroll taxes completely if he is re-elected.
“We will be, on the assumption I win, we are going to be terminating the payroll tax after the beginning of the new year,” Trump told reporters earlier this month, adding that he would pay into Social Security through the Treasury Department’s general fund.
Democrats say Trump’s promise to end the Social Security tax would destroy the program that serves America’s seniors and the disabled.
“Donald Trump has stated twice now (see here and here) his intent to terminate the payroll tax, effectively defunding Social Security,” said Rep. John Larson, D-1st District.
A member of the tax-writing Ways and Means Committee, Larson said the Social Security chief actuary recently released an analysis “that should sound the alarm and give every American pause.”
Social Security’s demise?
“If the payroll tax is terminated like the president has said he wants to do, Social Security disability benefits would dry up in 2021, leaving people with disabilities (including thousands of veterans) in the lurch,” Larson said. “Social Security retirement and survivors benefits would be gone in just three years, by mid-2023. By doing this, he would achieve an age-old goal of the far-right to eliminate Social Security.”
On Monday, Finance Committee Chairman Charles Grassley, R-Iowa, and Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee, pushed back against the actuary’s report — which was requested by four Democratic senators — calling it a “politically motivated effort to mislead voters.”
In a letter to Social Security Chief Actuary Stephen Goss, the Republicans say no legislation has been introduced that would permanently end the Social Security taxes in the U.S. House or U.S. Senate.
“It is unfortunate that some seek to use your office for election-year partisan scare tactics and we expect that in the future, you will not honor requests that serve no purpose beyond political posturing and are not grounded in serious inquiry,” the lawmakers wrote.
Larson also opposes the idea of the temporary deferral of the taxes, calling it “unworkable” and saying it will “result in double taxation for the vast majority of Americans who receive a paycheck.”
“This poorly thought out plan designed to boost the President’s political standing will only result in a headache for employers and employees,” Larson said. “President Trump should abandon it immediately.”