Senators urge administration to make payroll tax deferral optional for federal workers

A group of senators is urging the Trump administration to allow federal workers and military members to choose whether to have their payroll taxes deferred.

“Federal workers and service members should not be used as pawns for a payroll tax scheme that many private sector employers are unlikely to join and where key questions remain unanswered,” the senators wrote in a letter sent Tuesday to Treasury Secretary Steven Mnuchin and Office of Management and Budget (OMB) Director Russell Vought.

More than 20 senators signed the letter, which was led by Sen. Chris Van Hollen (D-Md.). With the exception of Sen. Susan Collins (R-Maine), the signers are members of the Senate Democratic Conference. 

The letter is the latest criticism of the deferral for federal workers and military members. Unions representing federal employees have also been pushing for the administration to make the deferral optional for workers at federal agencies.

Under IRS guidance that implements a memo President Trump signed last month, employers can choose to stop withholding Social Security payroll taxes through the end of the year for employees that make less than $4,000 biweekly. The employers would then collect the money by boosting the amount withheld from employees’ paychecks from Jan. 1 through April 30.

Many private-sector employers are not planning to defer their workers’ taxes because there are administrative challenges to implement the deferral and because they don’t want their employees to end up receiving smaller paychecks next year. However, the federal government is deferring its employees’ Social Security taxes, with OMB saying last week that the executive branch wants to give its employees quick relief during the coronavirus pandemic.

Federal agencies have indicated that the deferral is mandatory for their eligible employees. For example, the payroll services provider for the Department of Defense said that civilian employees and military members can’t opt out.

The senators said that “federal employees and service members lack basic information about how agencies will implement the payroll tax deferral.” They noted in their letter that tax professionals have said that employers may want to give their employees a choice on whether to participate in the deferral, because the employees could end up with less in take-home pay next year.

The senators asked the administration to provide them with information about whether and how the federal government would collect deferred taxes from federal workers who leave their jobs before they finish repayment, as well as a cost estimate for federal agencies to pay the employee payroll taxes they are unable to recoup due to the deferral. Additionally, the senators asked the administration for information about how federal agencies plan to communicate important information about the deferral to their employees. 

Tags Chris Van Hollen Donald Trump Steven Mnuchin Susan Collins
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