Trump’s payroll tax holiday could be overturned by Senate – Forbes Advisor
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President Trump’s tax holiday for American workers began this month, but the executive order granting the leave period may soon be challenged in Congress.
In response to congressional leaders who are still arguing over the budget for the next stimulus package, Trump announced four executive orders at an August 8 briefing. But the Government Accountability Office (GAO) has indicated that Congress could cancel the payroll tax holiday, which has been criticized for providing only temporary cash flow to workers that will eventually flow back to the federal government.
Trump payroll tax holiday details
Trump’s executive order orders the secretary of the treasury to defer certain tax obligations on wages.
Any employee who is paid less than $ 4,000 pre-tax per bi-weekly pay period is eligible.
The deferral period is from September 1 to December 31, 2020.
Typically, employees and employers each pay half of the 12.4% Social Security tax owed for each worker. But under the decree, employers can choose to abstain from withholding the 6.2% of employees for social security, but must still contribute their own share for each worker.
Deferred amounts will not incur penalties or interest, according to Trump’s order.
But guidelines issued by the IRS on Aug. 28 specify that deferred payroll taxes must be repaid between Jan. 1 and April 30, 2021. Any tax that is not refunded in this window will be subject to interest and tax. penalties. Employers could collect these penalties from their employees if necessary, according to the announcement.
Workers who see their wages increase this fall could see double the social security tax withheld from their wages in early 2021 to repay the deferral. But due to the lack of guidance on exactly how workers will be expected to reimburse deferred payroll tax, many employers are expected to continue withholding taxes as usual during the holidays.
In a scathing criticism of the Trump administration, the US House of Representatives refused to extend the tax holiday to its employees. Many large companies, including Costco and JPMorgan Chase, have also refused to implement it.
But many federal government employees will notice a difference in their paychecks from those issued in mid-September. This includes enlisted military personnel, as well as civilian employees of the Department of Defense and other federal agencies.
You will probably have to repay the deferred taxes
The president has the power to defer payroll taxes because he made a nationwide declaration of emergency in March. In the event of a state of emergency, the Secretary of the Treasury may make changes to the liability of taxpayers.
But it’s up to Congress to decide whether or not to permanently cancel deferred payroll taxes. Congress might also be able to cancel the holidays altogether, thanks to advice from GAO.
In a letter to Democratic leaders this week, the GAO explained that the payroll tax holiday order falls under the Congressional Review Act. This means that the Senate could vote to rescind the order if 30 senators sign to request a vote.
But with a Republican majority in the Senate, it’s unclear whether Democrats can muster enough support to force a vote to overturn the rule. And President Trump, a long-time supporter of permanent payroll tax cuts, is likely to veto a successful vote to overturn the order.
In the meantime, payroll tax deferral is still being pushed back by industry executives.
Last month, the United States Chamber of Commerce and more than 30 business groups signed a letter expressing frustration at the vague guidelines for deferral of payroll taxes and urged the White House and Congress to rescind deferred taxes. “Under a simple deferral, employees would end up with a big tax bill in 2021,” the letter said. “Many of our members find it unfair for employees to make a decision that would impose a big tax bill on them next year. “
Potential long-term impact of reduced payroll taxes
President Trump not only wants a payroll tax holiday, he is considering lasting cuts if he is re-elected.
“If I am victorious on November 3, I plan to cancel these taxes and permanently reduce social charges,” he said when signing his decrees on August 8.
But while a payroll tax cut would increase workers’ paycheques, it only helps people who are currently working. The national unemployment rate stands at 8.4%, after peaking at 14.7% in April.
Opponents of a payroll tax deferral say it’s not enough to support the U.S. economy at a time when so many are unemployed. While people earning paychecks would see a slight increase, the deferred amount is unlikely to match the amount they could receive through a one-time cash payment like the economic impact payments allowed by the CARES Act.
And it’s unclear how Trump plans to fund Social Security without payroll taxes. “The payroll tax goes to programs that Congress has promised the American people,” said Carl Tobias, professor at the University of Richmond law school.
If payroll taxes were phased out without a new source of funding for Social Security, the fund could run out by mid-2023, according to a recent letter from Stephen Goss, chief social security actuary, to Senate Democrats. .
The last time Americans received a payroll tax cut was in 2011, when the Obama administration cut employee payroll taxes by 2%. The unemployment rate that year, following the Great Recession, hovered around 9%.