Uncertainty Clouds Payroll Tax 'Holiday' For Idaho Companies

Sep 3, 2020

The temporary payroll tax holiday President Trump issued last month went into effect September 1. It allows employers to pause payroll tax collection from employee paychecks, boosting take-home pay through the end of this year. But few — if any — employers in Idaho are participating.

In requests to more than two dozen of Idaho’s largest employers, all 19 to respond said they were not implementing the program, including Simplot, Boise State and Idaho Power — at least not yet. Many indicated the program was under review. The IRS released its guidance last Friday, just two days before the program’s start date.

“The notice did not give the kind of clarity that I think a lot of folks in the tax profession were hoping for and definitely those in the payroll tax companies,” said Kelly Phillips Erb, a Philadelphia-based Tax Attorney and columnist for Forbes and Bloomberg Tax. She also runs her own blog.

“Very few folks have suggested that they would advise their clients to take advantage of it,” she said. “It's the uncertainty.”

The $1.24 trillion in annual payroll taxes primarily funds social security benefits for current beneficiaries, as well as Medicare benefits. Employees have about 7.6% of pay withheld each paycheck, listed as FICA on pay stubs. Employers collect those taxes, chip in an equal amount and send the funds to the government.

In its current state, President Trump’s executive order is only a tax deferral, not a tax cut. Employees may have to pay it back next year, in addition to paying current payroll taxes. Erb said there’s no specific guidance if an employee leaves or doesn’t make enough money to pay the taxes back.

“A lot of tax folks interpreted this to mean that the employer would remain responsible for the tax even if the employee doesn't repay it,” she said, clarifying that for payroll taxes, the employer is considered the taxpayer because employers withhold and submit the taxes on behalf of employees.

President Donald Trump hold up one of the four executive orders that he signed that addresses the economic fallout from the COVID-19 pandemic at his Trump National Golf Club in Bedminster, N.J., Saturday, Aug. 8, 2020. Trump signed the executive orders and bypassed the nation's lawmakers as he claimed the authority to defer payroll taxes and replace an expired unemployment benefit with a lower amount after negotiations with Congress on a new coronavirus rescue package collapsed. (AP Photo/Susan Walsh)
Credit AP Photo/Susan Walsh

The president has promised if reelected, he would make the deferral a permanent cut — though there’s no evidence he can change the tax code without congressional approval. Social Security officials have said eliminating the payroll tax could bankrupt the program by 2023. President Trump has said Social Security could be funded from the general fund, another move which would require congressional approval. 

Even if the payroll tax deferral was somehow made permanent next year, today, employers don’t know if they will be able to retroactively include employees in the cuts if they wait to join the program when more information is available.

“The guidance wasn't perhaps as comprehensive as it could be, considering the potential liability and the questions,” Erb said. “I know that a bunch of tax organizations have discussed sending letters to Congress or Treasury asking for further information."

So far, the Treasury Department hasn’t provided any clarity, and companies continue to hesitate.

Follow Troy Oppie on Twitter @GoodBadOppie for more local news.

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