Payroll tax deferral will be a mess

[disneysteve]

Am I the only one who thinks Trump's payroll tax deferral is going to be a mess?

Beginning tomorrow, September 1, employers can opt to not withhold payroll tax from employees' paychecks if they meet the income guideline (basically earning less than 100K/year). The problem is it is only a tax deferral. Those taxes still need to be paid by next April. If an employer does participate, they will also start taking out extra money beginning January 1 to make up that money.

So folks may get a break now but they'll get hit with double taxes at the start of the year. I guarantee 99.9% of people won't understand or prepare for that. They'll think they're getting a windfall and spend the extra money and then be hurting in January when not only does the regular tax come back but they also have to repay the tax for the previous 4 months.

Fortunately, many employers have already announced that they will opt out of the deferral and will keep collecting the tax as usual.

If you do get the deferral, I'd recommend parking that money in savings so that you're ready in January when your tax shoots up and your paycheck drops.

[Jluke]

If the taxes need to be paid by April 2021 why would employers take out more starting January 2021?

maybe I am missing the details.

[Smilinggirl]

I just signed on to ask what people think about this. I saw an article that pointed out the potential problem with seasonal workers as well. I can’t imagine this ending well regardless of how the election turns out.

[disneysteve]

If the taxes need to be paid by April 2021 why would employers take out more starting January 2021?

That way they can spread it out over 4 months. Otherwise, people would have to pay a lump sum in April and how many people could afford that?

The taxes that would normally be paid from September through December will now be paid from January through April, along with the taxes that would normally be paid during that time anyway. So no tax for 4 months and then double tax for 4 months to catch up.

Obviously, the intent is to make people think they're getting a bonus leading up to the election.

[kork13]

Even trying very hard to be apolitical, I find it difficult to identify any other reasonable benefit to this. The "problem" is that POTUS doesn't have the authority to waive the taxes due, so he could only adjust HOW they are paid. While employees will be square in the end, since their taxes paid will be tracked correctly by their companies regardless, it definitely smacks of political manipulation.

[Jluke]

That way they can spread it out over 4 months. Otherwise, people would have to pay a lump sum in April and how many people could afford that?

The taxes that would normally be paid from September through December will now be paid from January through April, along with the taxes that would normally be paid during that time anyway. So no tax for 4 months and then double tax for 4 months to catch up.

Obviously, the intent is to make people think they're getting a bonus leading up to the election.

Would they issue another tax statement to show the additional taxes paid January to April?

i think that is where I am stuck on reporting the information for tax returns.

[~bs]

payroll tax deferral a mess - that's why nobodys doing it.

[disneysteve]

Even trying very hard to be apolitical, I find it difficult to identify any other reasonable benefit to this. The "problem" is that POTUS doesn't have the authority to waive the taxes due, so he could only adjust HOW they are paid. While employees will be square in the end, since their taxes paid will be tracked correctly by their companies regardless, it definitely smacks of political manipulation.

No benefit at all, except possibly to Trump. It doesn't get employees any extra money, since they still have to pay the taxes, just a few months later. And it does absolutely nothing for the people most in need of help - the unemployed. It is 100% a political move.

Hopefully very few employers will actually fall for it.

[Like2Plan]

The last time this was done was with the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. It was a 2% reduction and was made up from the general fund so that SS/medicare would not be put into jeopardy sooner than already expected. (But, at the time there was opposition to it because it increase the national debt).

https://en.wikipedia.org/wiki/Tax_Relief,_Unemployment_Insurance_Reauthorization,_and_Job_Creation_Act_of_2010

The difference this time is that congress has not approved this and it only applies to the timing of when the tax is due. Also, the offhand remarks made by the President that he wanted to make it permanent made it confusing. Did he want to get rid of SS and Medicare? Did he mean he wanted to make the tax deferral which requires congressional approval permanent? According to WH economic adviser Larry Kudlow, he didn't mean he wanted to get rid of SS and Medicare:

https://thehill.com/homenews/sunday-talk-shows/511218-kudlow-says-trump-did-not-mean-he-was-eliminating-the-social

As others have already noted, the mechanics of how this will be implemented are pretty onerous.

According to this article ( https://www.shrm.org/resourcesandtoo...x-holiday.aspx ),

"Employers will need to withhold the total taxes deferred by each employee 'ratably' over the four-month period," Isberg said, so "employees will notice reduced net pay in 2021 equal to any increase in net pay in 2020 if they defer the tax."
After April 30, 2021, penalties, interest and "additions to tax" will begin to accrue on employers for tax amounts that have not been repaid, according to the guidance."

Some folks will not see the payroll taxes suspended (if they earn more than $4,000 for a biweekly pay period). So, hopefully the employer will be keeping track of this and not collect it again next year.

If you make less than 4,000 for a biweekly pay period--What if you are no longer work for the same employer during the catch up period next year?

And, I bet this change will impact when tax forms are ready next year--thereby delaying the ability to file taxes.


And, there is still confusion on the guidance to be put out by Treasury. Here is a recently article from the New York Time (might be behind a paywall) in which one scenario might be the companies would foot the bill for this tax holiday.

https://www.nytimes.com/2020/08/27/us/politics/trump-payroll-tax-coronavirus.html

[MonkeyMama]

It gives me a headache just thinking about it. Not that Congress never does this type nonsense, but it's a million times worse when one person just overrides something when they have no idea what on earth they are doing. (For one, you can't make tax changes without hammering out the infinite details).

I do remember reading somewhere that employers could get their employees to reimburse them for taxes, if it's not corrected through payroll in 2021. Yeah, like that is *ever* going to happen. For reals, I have had a few too many, "Oh my god I am never going to survive because my tax withholding changed by $1 from the last paycheck" kind of conversations with employees. Those people are never going to pay you back later. & yeah, they are going to freak if you do the whole thing through payroll. Either way, all I can do is roll my eyes at the whole thing. I imagine anyone who has ever been involved in employer payroll whatsoever is giving this a hard pass.

[disneysteve]

it's a million times worse when one person just overrides something when they have no idea what on earth they are doing.

I imagine anyone who has ever been involved in employer payroll whatsoever is giving this a hard pass.

I certainly hope that the vast majority of employers have the good sense to simply ignore this and carry on business as usual. As you said, workers freak out when their pay drops by a dollar. Can you imagine what would happen if all of a sudden come January 1, their payroll tax doubles (after being zero for 4 months)?

[Petunia 100]

Would they issue another tax statement to show the additional taxes paid January to April?

i think that is where I am stuck on reporting the information for tax returns.

It will be reported on employer payroll tax returns, not on individual income tax returns.

[Petunia 100]

It's an incredibly stupid idea, which is no longer at all surprising.

[LivingAlmostLarge]

I hope no employer chooses to do it. I have many people I work with and know who do payroll. WTF? They are like no way. It'll be a mess come January 2021 unless it's forgiven and even then they don't want to deal with ANGRY workers yelling at them for suddenly taking out more. Then explaining to them that they were given a loan that needs to be paid back? It'll be so ugly.

I mean it's ridiculous. It does not help the unemployed.

[disneysteve]

It does not help the unemployed.

It also doesn't help the employed since the tax still has to be paid. Eliminating the tax (which would be monumentally stupid) would actually put more money in people's pockets but just deferring it accomplishes nothing.