Trump’s Payroll Tax Deferral Is on Hold

The U.S. Treasury Department has yet to tell companies how to handle President Donald Trump’s executive order delaying the due date for employee payroll taxes—which has left employers in the lurch.

It’s been two weeks since Trump issued a directive deferring the deadline to pay workers’ portions of Social Security taxes from September 1 through the end of 2020. But employers, who are responsible for submitting those payments to the Internal Revenue Service (IRS), are waiting to hear from the agency on how the tax bill will be handled when it eventually comes due.

Trump touted the payroll tax deferral as a boost for workers as the economy reels from the coronavirus pandemic. However, some companies have already shied away from implementing it because the taxes would ultimately have to be paid unless Congress acts to forgive the liability.

Large employers including Walmart, Macy’s Inc., and Procter & Gamble Co. have said they need more details from the IRS. These companies didn’t immediately respond to a request for comment on whether they would implement the deferral if the IRS didn’t issue any rules by the September 1 start date for the deferral. The U.S. Office of Personnel Management didn’t respond to a question about whether it plans to defer taxes for federal employees.

The U.S. Treasury and IRS didn’t respond to requests for comment on when the guidance would be published.

“Companies cannot do anything until there is guidance,” Veena Murthy, a principal at accounting firm Crowe LLP, said. The order “requires Treasury and IRS to provide some way it can be done. In this case, particularly, there really are no answers.”

“I don’t think there is a bloody chance that, at this point, anybody is implementing anything before Labor Day,” said Adam Markowitz, an enrolled agent and vice president at Howard L Markowitz PA CPA.

Payroll software providers need time to update their systems, and they can’t do that without guidance from the IRS and Treasury, Markowitz said. And companies have learned the hard way about claiming benefits before having sufficient guidance, he said.

Following enactment of the last coronavirus stimulus legislation in March, some businesses quickly took advantage of loans under the Paycheck Protection Program but later found, after guidance was issued, that it might have been in their best interest to ditch the loans in favor of other tax credits or grants, he said.

The U.S. Chamber of Commerce has said that many companies are unlikely to implement the deferral, even with the IRS guidance, because it forces a large tax bill on employees in the future and would be very difficult for employers to administer.

“Further, the lack of concrete guidance on the most basic of implementation issues presents an untenable situation, making it basically impossible for employers to implement this EO [executive order] and leaving little choice but for those employers to continue remitting payroll taxes to the Treasury,” Caroline Harris, the Chamber’s chief tax policy counsel, said in a statement.

Treasury Secretary Steven Mnuchin has said he can’t force companies to implement the deferral, but he hopes companies will participate. Trump has said he will forgive the tax bills if he’s elected to a second term, but that would require participation from a Congress that has been hesitant to cut the funding source for Social Security.

The onus is now on employers to provide explanations to their workers about why the company isn’t implementing the deferral. Companies should prepare to face a potential backlash from employees, Markowitz said.

The average employee isn’t going to understand, nor care, that there isn’t any IRS or Treasury guidance, he said. “They’re just going to say, ‘Hey, Trump said I should have 6.2 percent more in my paycheck every week, and I don’t.’”

— With assistance from Nic Querolo, Gerald Porter Jr. & Jordyn Holman.