Temporary Payroll Tax Deferral Plan Starts Sept. 1

Starting Tuesday (Sept. 1), U.S. paychecks could be a little fatter.

That’s the day Social Security taxes will not be withheld as the result of President Donald Trump’s executive order to postpone payroll taxes through Dec. 31 to help taxpayers hurt by the pandemic.

But there’s no guarantee every worker will get relief. The order is not mandatory, and it will be up to employers on whether to provide it.

The grace period has an income guideline. It applies to workers whose wages payable during any bi-weekly pay period are generally less than $4,000 on a pre-tax basis. That equals about $104,000 annually.

These delayed taxes would have been repaid unless Congress agrees to forgive them permanently.

If lawmakers do not act, the taxes must be repaid next year between Jan. 1 and April 30, The Wall Street Journal (WSJ) reported. Employers who opt to provide the four-month relief will be expected to withhold twice as much as usual early next year.

In addition to deferral of the 6.2 percent Social Security tax on wages, Trump issued other actions by executive order from his golf club in Bedminster, New Jersey on Aug. 8. They included federal unemployment benefits, help for renters and homeowners behind on their payments and extended relief on student loans.

Trump said he provided the temporary assistance to households while Congress is deadlocked on another stimulus package.

House Speaker Nancy Pelosi called Trump’s executive actions "absurdly unconstitutional." But Republicans praised the president’s actions.

Late Friday (Aug. 28), the IRS issued its guidance.

The White House said last week that the federal agencies that process payrolls for the nation’s 600,000 federal workers will implement the tax deferral, WSJ reported.

But some trade groups, including the U.S. Chamber of Commerce and the National Council of Chain Restaurants told WSJ a system where employees can choose whether to participate will not work.

“Many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law,” the groups wrote last week, WSJ reported.

Tony Reardon, president of the National Treasury Employees Union, which represents IRS workers, told WSJ that employees should be given the ability to opt out of the deferrals.

“We fear that too many employees will be unprepared for the higher tax obligation in 2021,” he said. “Additionally, we are especially concerned about IRS employees because an overdue tax debt can have severe job consequences.”



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