A Message on the Payroll Tax Deferral Program
There has been a lot of confusion over the past few days about if or when the federal government may start implementing the payroll tax deferral for employees of the federal workforce.
Here is what we know right now.
This afternoon, media outlets were reporting that federal employees could see changes in their withholding amounts in September. NTEU has not been able to confirm this. We have been seeking information from the finance centers that handle federal payrolls and looking for guidance that relates specifically to federal agencies.
NTEU believes you should have a choice about this. Why? Because this is not a tax cut. It is a temporary deferral of taxes that all employees, including in the private sector, pay toward Social Security. You would be expected to pay this back in the first few months of 2021.
While many private sector companies are choosing not to participate in the deferral; federal agencies and employees may not have that choice.
Under the president’s plan, employers would stop withholding the 6.2 percent payroll tax (this money goes to the Social Security fund) from employees who earn less than $104,000 a year for the remainder of 2020, which would increase their take-home pay for the rest of the year. However, the president cannot unilaterally change tax law, which means the deferred taxes would still be owed starting in January 2021. As a result, employees would see significant reductions in take-home pay or incur an unexpected tax debt next year.
The administration has said that it will urge Congress to permanently forgive the taxes and not require them to be paid back next year, but it is not clear Congress would agree, leaving employees with a larger-then-normal tax obligation next year.
At a minimum, we urge Treasury officials to give employees ample time and clear instructions about how this will affect employees’ income. If the government does not provide a clear and complete explanation that the tax withholding is only temporarily paused and must be fully paid, we fear that too many employees will be unprepared for the higher tax obligation in 2021.
Additionally, we are especially concerned about IRS employees because an overdue tax debt can have severe job consequences. As long as employees are fully educated on the consequences, they should be free to choose for themselves whether to participate.
NTEU is in the process of notifying Congress and the administration about our concerns. We will keep you updated on this important issue.