President Donald Trump's payroll tax holiday could provide a temporary wage boost for workers this fall, but most employers are declining to suspend the employees' share of the Social Security tax during the final four months of the year over uncertainties about repaying the money next year.
The president handed down the payroll tax deferral plan for employees in an executive order in early August to grant employers the right to suspend the 6.2% portion of the Social Security tax from Sept. 1 to Dec. 31. The payroll taxes would have to be repaid to the Social Security trust fund next year by employees, but Trump said the four-month tax holiday could help spur more spending and aid the economic rebound this year as the United States recovers from the downturn triggered by the coronavirus pandemic.
"There's been a lot of interest in this and questions asked about it, but I don't have any clients yet that are rushing to try this out," said Justin Follis, the East Tennessee tax leader for the LBMC accounting firm. "This was done by the stroke of the pen by the president and there's been very little guidance and a lot of concerns about how this will work."
Employers that are required to withhold the employees' Social Security tax from wages and remit that payment to the government worry that they may have to absorb the repayment costs if an employee leaves by the end of the year and won't be on the payroll next year to repay the deferred tax, Follis said. Businesses also worry about providing bigger take-home pay for workers this fall only to have to cut such take-home pay with double tax withholding in early 2021.
Most of Chattanooga's biggest employers are opting not to defer the employees' payroll portion of the Social Security tax. Erlanger Medical Center, which employs about 7,000 workers at its hospitals in Southeast Tennessee and western North Carolina, is not offering the tax deferral.
"The administration wanted to do what would be best for our employees in the long run and did not want them to have to pay double next year when it's time to pay it back," Erlanger spokeswoman Blaine Kelly said. "They took a lot into consideration before making the decision, including speaking to several employees."
BlueCross BlueShield of Tennessee, the state's biggest health insurer with more than 4,000 local employees, and Unum Group, the world's biggest disability insurer with about 10,000 employees nationwide, also decided against the tax deferral plan.
"Since this program only postpones tax payments, it could create a tax liability in the form of higher withholdings next year for participating employees," said Dalya Qualls, director of corporate communications for BlueCross. "We made the decision to opt-out after consulting with tax, legal and compensation experts, and hearing directly from our employees, many of whom did not want to participate."
U.S. Xpress Enterprises, the Chattanooga-based trucking giant with nearly 10,000 employees, also decided against offering the tax deferral to its employees "after a thorough review of the option with our tax, payroll, HR and IT teams," company brand manager Danna Bailey said.
Even companies hardest hit by the pandemic appear reluctant to implement the payroll tax deferral plan.
"I would say that practically all of the retailers that we've heard from on this issue have decided that they're not going to implement the deferral, or their company hasn't made a decision yet," Rachelle Bernstein, vice president of the National Retail Federation, told FOX Business.
Federal employees will be getting the tax deferral, however, and should start seeing bigger paychecks by late September as a result. The Tennessee Valley Authority, which is an independent federally owned corporation, plans to outline when and how it will implement the changes to employees next week.
The holiday applies to workers whose biweekly pay is below $4,000 on a pretax basis, and it runs from Sept. 1 until the end of the year.
Trump has suggested that the tax deferral could ultimately become a tax break if he is re-elected as president in November.
Trump said last month he wants to "terminate" the tax so that workers are not required to pay back the money at a later point.
"If I'm victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax," Trump said. "I'm going to make them all permanent."
But on Wednesday, Democrats in Congress worried that the payroll tax deferral could weaken the funding for Social Security took a step toward forcing a vote on overturning President Trump's payroll-tax deferral.
In a letter sent to the Government Accountability Office (GAO), Senate Minority Leader Charles Schumer, D-New York, and Senate Finance Committee ranking member Ron Wyden, D-Oregon, asked for an expedited determination about whether the Treasury Department and IRS's guidance implementing the payroll-tax deferral is a "rule" for purposes of the Congressional Review Act (CRA).
"This expedited review and determination by GAO is critical and will allow us to move forward with the CRA process and ultimately protect lower and middle-income Americans' hard-earned wages and retirees' Social Security benefits from Trump's plan," Schumer and Wyden said in a statement.
Under the Congressional review process, Congress can overturn recently issued rules produced by federal agencies with a two-thirds vote in the Congress.
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