If You Choose the Payroll Tax Deferral, How Would it Affect You?

US Chamber of Commerce

President Trump’s recently issued Executive Order (EO) to defer payroll taxes, while well-intended, raises serious concerns for both employees and employers. The U.S. Chamber of Commerce along with more than 30 trade associations sent a letter to Congress and the Treasury Department urging them to work together on a path forward to provide tax relief to families without imposing a large tax bill in the future.

The big picture: The letter states, “Under current law, the EO creates a substantial tax liability for employees at the end of the deferral period. Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.”

By the numbers: If Congress doesn’t act to forgive the payroll tax, the order could impose serious hardships on employees who make under $104,000 a year, because they could be stuck with a large tax bill in 2021. While employees will get a relatively small benefit in each paycheck, they will owe a lot next year.

It is unfair to American workers to make a decision that would force a big tax bill on them next year. “It would also be unworkable to implement a system where employees make the decision,” the letter states. 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.”

The bottom line: The administration and Congress must “come together on a path that provides much-needed tax relief for families without the uncertainty associated with the recent payroll tax Executive Order.”