Senators urge Trump administration to make payroll tax deferral optional for federal workers

Trump announces plan to boost take-home pay for Americans with payroll tax cut

President Trump delivers remarks on U.S. economy during Labor Day news conference.

A group of top senators urged the Trump administration to allow federal workers and military members to opt out of a temporary payroll tax deferral that began at the start of September.

"Federal workers and service members should not be used as pawns for a payroll tax scheme that many private sector employers are unlikely to join and where key questions remain unanswered," the senators wrote in a letter addressed to Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Russell Vought.

More than 20 senators signed the letter, which was spearheaded by Sen. Chris Van Hollen, D-Md. With the exception of Sen. Susan Collins, R-Maine, all of the signatories are members of the Senate Democratic Caucus.

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The issue stems from an executive measure that President Trump signed on Aug. 8 issuing a four-month FICA deferral for workers earning less than $104,000 annually. While employees could see a maximum paycheck boost of about $2,149, that money needs to be paid back by the end of April.

That means workers could potentially owe an additional 6.2% in past-due taxes until they pay back the amount deferred in 2020.

While few private companies are opting to participate in the tax holiday over concerns they could ultimately be on the hook for the money when it’s due next year, the federal government has said it intends to withhold the taxes from more than 1 million federal workers.

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"We urge you to let federal workers and uniformed service members choose whether to defer their payroll tax obligations … rather than forcing them to participate," the senators wrote, adding: "While some federal employees may want to defer their payroll tax payments, unions representing federal workers have made clear that many others do not."

The measure, which Trump said could provide some financial salve to workers and households struggling as a result of the virus-ravaged economy, came amid a congressional stalemate over another coronavirus relief package. He's indicated that 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."

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But abolishing the debt requires an act of Congress, an all-but-impossible scenario with Democrats controlling the House.

Absent legislation, the Treasury Department's guidance indicates that after Jan. 1, companies will withhold taxes from paychecks in larger amounts so employees can pay back what they owe, meaning that millions of Americans could see a smaller paycheck in the first few months of 2021.

The senators asked the administration to provide them with information about what happens if an employee or service member leaves their job prior to repaying the deferred payroll taxes in their 2021 withholdings and requested a cost estimate for federal agencies to pay the employee payroll taxes they unable to recoup because of the deferral.

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