Seventeen House Democrats on the House Ways and Means Committee last week sent a letter to the Trump Administration seeking clarity on the rollout of the president’s executive order on deferral of payroll taxes.
The payroll tax deferrals starting later in September will apply to federal employees making less than $104,000 per year, or $4,000 per pay period. The deferral is outlined in an August 8 executive order from President Trump. In the short-run, federal employees receiving the deferral would recognize an increase in their take-home pay. In the long-run, however, it is uncertain in the executive order’s language if the taxes would have to be paid back by the employee sometime after the beginning of 2021.
The executive order states:
Sec. 4. Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.
In the House Democrats’ letter to the White House last week, the representatives pointed to “contradictory statements and publications by Trump Administration officials” in the order’s implementation.
They requested timely answers to questions about implementation of the order, including the number of federal workers impacted, whether workers would be allowed to opt out, whether military personnel would be affected, and how workers will be notified of substantial reductions in take-home pay that they are set to receive in 2021.
“Nearly a month after the President’s memorandum on deferring payroll tax obligations, the administration’s conflicting and changing statements have left employers and employees confused. On behalf of federal employees in our districts, we are writing today to seek clarity regarding IRS Notice 2020-65, the guidance implementing the President’s memorandum, ” they wrote. “A week prior to the Notice, the National Finance Center (NFC) issued a notification about upcoming changes, causing confusion as to how the changes could be made without the necessary Treasury guidance. Although a revised notification has since been issued, we are concerned about the lack of cross-agency coordination regarding this significant change for the federal workforce.”
The letter was signed by 17 members of the House Committee on Ways and Means: Reps. Don Beyer (VA), Mike Thompson (CA), Danny K. Davis (IL), John Larson (CT), Lloyd Doggett (TX), Earl Blumenauer (OR), Brian Higgins (NY), Judy Chu (CA), Terri Sewell (AL), Suzan DelBene (WA), Jimmy Panetta (CA), Bill Pascrell, Jr. (NJ), Gwen Moore (WI), Linda Sanchez (CA), Dan Kildee (MI), Dwight Evans (PA), and Thomas Suozzi (NY).
The full text of the letter is below and available here.
September 2, 2020
The Honorable Steven Mnuchin
Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC 20220
The Honorable Sonny Perdue
Department of Agriculture
1400 Independence Ave., S.W.
Washington, D.C. 20250
The Honorable Michael J. Rigas
Office of Personnel Management
190 E St., NW
Washington, DC 20415
Dear Secretary Mnuchin, Secretary Perdue, and Acting Director Rigas:
Nearly a month after the President’s memorandum on deferring payroll tax obligations, the administration’s conflicting and changing statements have left employers and employees confused.[i] On behalf of federal employees in our districts, we are writing today to seek clarity regarding IRS Notice 2020-65, the guidance implementing the President’s memorandum.[ii]
A week prior to the Notice, the National Finance Center (NFC) issued a notification about upcoming changes, causing confusion as to how the changes could be made without the necessary Treasury guidance.[iii] Although a revised notification has since been issued, we are concerned about the lack of cross-agency coordination regarding this significant change for the federal workforce. We are especially alarmed that after many businesses and groups, including the U.S. Chamber of Commerce, have expressed concern about the ramifications of deferral for employers and employees, federal public servants are being used as guinea pigs.[iv]
Even today, the Notice leaves a number of questions unanswered. Despite Secretary Mnuchin’s previous statement that “we can’t force people to participate, ” the Notice language is not explicit as to whether the postponement is optional for employers, much less for employees.[v] Additionally, the only direction provided about employees who separate from their employers prior or during 2021 is that the employer “may make arrangements” to collect the taxes.
As these changes go into effect for employees’ paychecks starting tomorrow, we request a prompt answer to the following questions:
- What steps are you taking or advising other agencies to take to inform federal workers of their lower take-home pay in 2021?
- Will there be any procedure for federal workers to opt-out of this deferral?
- What are your plans for recovery of reduced payroll withholding from workers who leave the federal workforce prior to or during 2021?
- Are other payroll providers for federal employees (including the Defense Finance and Accounting Service, the Department of Interior National Business Center, and the General Services Administration National Payroll Branch) implementing similar procedures? Will such changes be made for active duty military personnel?
- What number and percentage of employees under NFC’s purview, and the overall federal workforce, will be affected by these changes?
- Under the Notice, are employers required to defer withholding of employee Old-Age, Survivor and Disability Insurance (OASDI) taxes? If not, what is your estimate of the take-up rate by employers? Are you aware of any state laws that would make deferral mandatory?
- The Presidential Memorandum directed the Secretary of the Treasury to “explore avenues, including legislation,” to permanently forgive the deferred amounts. What is your estimate of the lost revenue to the Social Security trust funds if such legislation were enacted?
- The stated goal of the Presidential Memorandum is to “put money directly in the pockets of American workers.” Do you support a pay increase for federal workers?