Trump’s Payroll Tax Holiday Comes With A Major Catch
Many Americans who earn less than $104,000 a year will see a bump in their take-home pay for the remainder of 2020 thanks to President Donald Trump’s executive order mandating a payroll tax holiday from September through December.
However, Trump’s order merely defers the payment of those payroll taxes until the start of the new year, meaning that anyone who benefits from the measure will be on the hook for whatever they saved.
The tax burden could be substantial — White House economic advisor Larry Kudlow said in August that the average person who partakes in the tax holiday stands to take home an additional $1,200 through the end of 2020.
IRS guidance issued in late August revealed that employers who partake in the payroll tax holiday must repay the amount saved by May 1, 2021, else “interest, penalties, and additions to tax will begin to accrue.”
The guidance states that employers “may make arrangements” to collect all deferred payroll taxes from employees who benefitted from the holiday, meaning that such workers can expect to receive reduced take-home pay starting Jan. 1 until their deferred taxes are paid in full.
“This fake tax cut would … be a big shock to workers who thought they were getting a tax cut when it was only a delay,” Senate Finance Committee Ranking Member Ron Wyden of Oregon said in August of Trump’s executive order. “These workers would be hit with much bigger payments down the road.”
Trump has pledged to permanently forgive the deferred taxes and make additional cuts to the payroll tax if he wins re-election in November, but such changes to the tax code need to come through Congress, according to The Washington Post.
Democratic presidential nominee Joe Biden’s campaign did not immediately respond the Daily Caller News Foundation regarding whether or not the former vice president plans to call on Congress to make Trump’s tax holiday permanent if he wins in November.
Few businesses are expected to take advantage of the payroll tax holiday to avoid burdening their employees with less take-home pay in the first four months of 2021, according to The Hill.
“Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year,” The U.S. Chamber of Commerce said in a letter to Congress in August. “It would also be unworkable to implement a system where employees make this decision.”
However, active-duty military members will not be able to opt-out of Trump’s payroll tax holiday.
“Military members are not eligible to opt-out of the deferral if their Social Security wages fall within the stated limits,” the Defense Finance and Accounting Service said on Saturday. “The deferral will happen automatically.”
NEW: over Labor Day weekend the Trump Administration quietly confirmed it will subject the entire United States military to Trump’s payroll tax scheme.
They wrote: “military members are not eligible to opt-out of the deferral” which must be repaid in 2021https://t.co/P8G9leOUrN pic.twitter.com/f5ThW6Pnhe
— Rep. Don Beyer (@RepDonBeyer) September 8, 2020
Virginia Democratic Rep. Don Beyer lambasted the Trump administration’s decision to subject the military to the payroll tax holiday and to reduced paychecks in January, saying on Twitter it shows his “undeniable disrespect for military families.”
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