WASHINGTON — On Tuesday, employers across the country were given the option of deferring payroll taxes for employees. Many say the risk is too great and they will not be participating.
The guidance from the United States Treasury leaves many questions about who would be responsible for repayment if the deferment is not forgiven by Congress in 2021.
Because the deferment was signed via executive order by President Trump, and not through legislation passed by the United States Congress, the money is still owed and will need be paid back after the first of the year if it is not replaced with funding from Congress; this has caused many employers and the two largest payroll firms in the United States to caution against proceeding with the payroll tax deferment.
“A lot of employers are going to choose to not do this because the risk is on them and why bother taking on that risk when the reality is it’s not really a payroll tax cut,” says Jonathan Bydlak, the Director of Fiscal and Budget Policy for the R-Street Institute. “Frankly it just upsets their payroll structure so why bother introducing this other variable into the process if there is no real benefit to it.”
In the 3-page guidance for the IRS employers are warned that uncollected taxes in 2020 may be owed in 2021; leaving open the possibility that employers or employees might save some money now, but be hit twice as hard after the first of the year.
“The employer is on the hook , the way this three page guidance reads it is up to the employer to make an arrangement with the employee,” says Adam Markowitz the Vice President of Markowitz Accounting. “They then have to hope that it is made up by the end of April, because come April 30, all that money is due from the employer to the US Treasury.”
Payroll taxes are split evenly between an employee and an employer. The money goes towards social safety net programs, specifically Social Security and Medicare.
Last month the chief actuary of the Social Security Administration said the Social Security trust fund could be depleted by 2023 if President Trump were to permanently eliminate the payroll tax and not offer a replacement revenue source.
“I am advising all of my employers just to forget about this, just don’t do about this, there is nothing you can possibly gain from doing this,” says Markowitz.
See the guidance from the IRS below:
© 2020 Cox Media Group