Businesses, states pass on Trump payroll tax deferral
President Trump’s payroll tax deferral is meeting resistance from employers in the public and private sector, including Fortune 500 companies and state governments.
While payroll taxes are being deferred for many federal workers and members of the military, employers beyond the executive branch have much less of an appetite to participate. Business executives and state officials say they’re concerned their employees may end up with smaller paychecks next year because of the need for individuals to repay the deferral by April 30.
The decision by many business leaders to pass on the program marks a setback for Trump’s attempt to increase workers’ paychecks during the pandemic just weeks before the presidential election.
“UPS has opted out of participating in the voluntary Executive Order that allows deferral of collection of employee payroll taxes for the remainder of 2020,” Glenn Zaccara, a spokesperson for the company, said. “We believe our decision was in the best interest of our employees.”
“We recognize that for some, it may have been helpful to have more money in their paychecks in 2020,” Zaccara added. “Yet, not all employees have professional tax planning needed to prepare effectively for the added obligation they would face in 2021.”
Trump signed an order in August directing the Treasury Department to allow employers to defer employee-side Social Security taxes in an effort to help workers amid the coronavirus recession.
The president is hoping that the deferral will help his reelection effort, saying he will forgive taxes if he wins a second term. However, forgiving the deferred taxes requires congressional action, and it’s far from a done deal that lawmakers would pass legislation on forgiveness if Trump wins reelection.
The payroll tax deferral’s impact on the election is likely to be dampened by the fact that more and more employers say they’re not going to participate.
Under guidance from the Treasury Department and the IRS, employers can stop withholding the 6.2 percent Social Security tax for employees through the end of the year for workers who make less than $4,000 biweekly. However, employers would then need to collect the amount that was deferred by increasing withholding from paychecks from January through April.
People making $50,000 a year would have about $1,073 deferred over nine biweekly pay periods, according to a letter the U.S. Chamber of Commerce and other business groups sent policymakers in August that raised concerns about the deferral.
Some large companies have said they won’t make changes to their workers’ paychecks, while others have not publicly announced their plans. Employers can begin deferring the payroll tax starting this month.
Those who have said they won’t be participating argue the deferral could pose problems for some of their employees in the first few months of 2021.
“Wells Fargo has decided to continue to withhold and remit the Social Security portion of the employees and employers’ payroll taxes to avoid creating a future financial burden for employees,” said Peter Gilchrist, a spokesperson for the company.
Mike DeAngelis, a spokesperson for CVS Health, said the company “determined that participating in this optional deferral program is not in our employees’ best interest.”
Businesses also are reluctant to participate in the deferral because they continue to have questions about implementation.
A FedEx spokesperson said there are still some unanswered questions following the release of the IRS guidance and that the company “plans to continue withholding and remitting employees’ share of Social Security taxes at least until more complete guidance is released by the Internal Revenue Service and Treasury Department.”
It’s not just employers in the private sector who are rejecting Trump’s offer. Some public-sector employers, including states led by Republicans and Democrats, have decided against implementing the deferral.
The National Association of State Auditors, Comptrollers and Treasurers surveyed states and found that most are not participating, while others said they weren’t sure. No states affirmatively said they were planning to defer employees’ taxes.
“This is not a partisan issue,” Illinois Comptroller Susana Mendoza, a Democrat, told The Hill. She said her office’s employees’ taxes won’t be deferred, and agencies under the state governor’s purview also are not implementing the deferral.
“I decided not to support a deferral that would double workers’ taxes after January and on top of that put Social Security at risk,” Mendoza said.
Trump and his allies say that any legislation to forgive the deferred taxes would transfer money from the general fund to the Social Security trust fund.
Red states that aren’t participating include Indiana, Utah and South Carolina.
“We just decided … to not pursue this as a state,” Indiana Gov. Eric Holcomb (R) said during a news conference last week. “It’s a delay, and you end up having to pick up in January and pay double.”
John Valentine, chairman of the Utah State Tax Commission, told The Hill that the commission had concerns about the deferral from the perspective of both the employer and the employee. He said a significant amount of programming would have been involved, there would be liability for the state if employees left before paying back the deferred taxes and employees would face reduced paychecks next year.
“It was clear that the employees were very nervous about the payback aspects of it,” he said.
Richard Eckstrom, comptroller general for South Carolina, said the White House had good motives but the directive doesn’t accomplish its intended purpose.
“It wasn’t quite the benefit that it sounded like initially,” Eckstrom, a Republican, said.
The Postal Service and the Democratic-led House of Representatives also are not deferring payroll taxes for their employees. Senate Rules and Administration Committee Chairman Roy Blunt (R-Mo.) told reporters Tuesday that he doesn’t think the Senate is going to defer its employees’ payroll taxes either.
While many employers are opting against the program, some employers with ties to Republicans are participating.
Trump’s Office of Management and Budget said the Executive Branch is deferring payroll taxes for its employees, and federal agencies have indicated that eligible employees can’t opt out of it.
The Republican National Committee is giving its employees the option to have their taxes deferred, spokesperson Michael Ahrens said.
Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, has indicated that his reelection campaign is participating.
Brady introduced legislation on Friday that would build on Trump’s August memo by creating a payroll tax holiday from Sept. 1 through Dec. 31. He told reporters last week that he thinks it would be a shame if employers don’t offer the deferral to their employees, and that it is crucial for Congress to pass his bill in order to maximize relief for workers.
“Every dollar really counts right now because we are not yet out of this pandemic,” Brady said.
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