Under President Trump an Executive Order was issued to defer payroll taxes. While well-intended to provide relief for Americans during the COVID-19 crisis, the move has instead raised serious concerns for both employers and employees.
Currently, the payroll Executive Order creates a substantial tax liability for employees at the end of the deferral period. Without Congressional action to forgive the payroll tax, the order threatens to impose serious hardships on employees who make under $104,000 a year, who will be stuck with a large tax bill in 2021.
The following chart demonstrates that while employees will get a relatively small benefit in each paycheck, they will owe a lot in 2021.
Note: The Executive Order states that the payroll tax deferral will apply to those who make up to $4,000 per paycheck, which equates to $104,000 annually.
Our take: It is unfair to American workers to make a decision that would force a big tax bill on them next year and unworkable to implement a system where employees make the decision. Therefore, many employers will likely decline to implement a deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law.
Congress and the Administration need to come together on a path that supports families without creating the uncertainty of a big tax surprise next year.
Learn more about the Chamber’s concerns regarding this Executive Order.
Read the Chamber’s August 12 letter to the Treasury Department.
