Politico

Memo outlines plan to defer payroll taxes for federal employees


At least part of the federal government is preparing to implement President Trump’s plan to defer payroll taxes even before his administration finishes spelling out the details of how it will work.

The National Finance Center, which handles payroll for thousands of federal workers, said it will begin deferring Social Security taxes for “all” employees who are eligible for the initiative — apparently not giving them the option of whether to participate.

In a memo posted on its website, NFC is also telling workers that the deferred taxes will eventually be forgiven, though that is hardly certain — only Congress can do that.

“This is a deferral of the deductions, and Treasury should look to have legislation put in place so that employees do not have to pay back these deferred amounts,” reads the memo, which was first reported by the tax journal Tax Notes.

It comes as Treasury is still trying to finish guidance explaining exactly how the initiative is supposed to work.

Earlier this month, Trump issued a memo ordering the deferral of workers’ share of the 12.4 percent Social Security payroll tax.

The idea is to boost workers’ take-home pay, and the president’s electoral prospects, ahead of the November elections. The money will eventually have to be repaid, though Trump is betting Congress will eventually step in and waive the tax bills.

Much of the focus on the plan has been on the lukewarm-to-chilly reception from the business community. Many trade associations have warned employers won’t participate because they fear the plan could leave their workers facing big, deferred tax bills they won’t be able to pay.

Less clear is how the federal government — one of the nation’s biggest employers — will respond. It would be embarrassing for the administration if the executive branch could not implement the plan, slated to begin Sept. 1, in a timely way.

With the start date only days away, the government “had to prepare for this change,” the Department of Agriculture, which houses the NFC, said in an email.

“However, nothing will be implemented until final guidance is received.”

The NFC handles payroll for many, though not all, federal workers.

Unions representing federal workers criticized the plan, echoing concerns from the business community that it could leave employees facing big tax bills next year.

“It might give you pause if you’re saying, ‘gee, I’m going to owe all this money back,’” said Michael Randall, head of the National Association of Agriculture Employees. “I’m hoping that it’s not going create some hardship down the line.”

National Treasury Employees Union President Tony Reardon said he is “especially concerned about IRS employees because an overdue tax debt can have severe job consequences.” He said workers should be allowed to opt out of the initiative.

One question tax practitioners waiting for Treasury’s guidance have had is how to interpret the plan’s rule limiting the deferral to people whose pre-tax, biweekly pay is not more than $4,000. Some people’s compensation varies because, for example, they receive part of their pay in the form of bonuses.

The NFC memo indicates it is not interpreting the $4,000 limit strictly, saying there are instances when people’s pay can exceed that and still qualify.

“Employees whose normal wages would not exceed the $3,999.99 but who are working a tremendous number of hours due to COVID or other circumstances that increase their wages over the $3,999.99, would have OASDI withheld from their salary,” it says, referring to the Social Security tax.

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