In tax reform executive order, devil is in the details

Itinerary for this `Payroll Tax Holiday' is subject to change

Fran Coet
Special to Colorado Community Media
Posted 8/31/20

There’s a rumor out of Washington, D.C., that workers’ regular paychecks are about to fatten as the federal government quits collecting certain taxes. Sure, maybe. But, as usual, the devil …

This item is available in full to subscribers.

Please log in to continue

Username
Password
Log in

Don't have an ID?


Print subscribers

If you're a print subscriber, but do not yet have an online account, click here to create one.

Non-subscribers

Click here to see your options for becoming a subscriber.

If you made a voluntary contribution in 2019-2020, but do not yet have an online account, click here to create one at no additional charge. VIP Digital Access includes access to all websites and online content.


Our print publications are advertiser supported. For those wishing to access our content online, we have implemented a small charge so we may continue to provide our valued readers and community with unique, high quality local content. Thank you for supporting your local newspaper.

In tax reform executive order, devil is in the details

Itinerary for this `Payroll Tax Holiday' is subject to change

Posted

There’s a rumor out of Washington, D.C., that workers’ regular paychecks are about to fatten as the federal government quits collecting certain taxes.

Sure, maybe.

But, as usual, the devil resides in the details.

An executive order from President Trump on Aug. 8 instructs the Treasury Secretary to use his authority to “defer” those payroll taxes “with respect to the American workers most in need.”

The tax obligation to be deferred (with careful emphasis on interpretation of the word deferred) is the Social Security tax withheld from employees pay - a 6.2% flat-tax that workers will eventually recoup if they become disabled or retire.

Specifically, the deferral will be “made available” during a bi-weekly pay period, generally less than $4,000 (pre-tax) - or targeting workers with annual income of roughly $100,000 or less.

If some of the language here seems vague (what is “generally” less than $4,000?), it’s because it comes right from the executive order. I can’t provide specifics where none exists.

And you may notice that I keep using the term “defer,” which means “to put off to a later time; postpone.”

Defer is not forgive. Defer is not purge. Defer is like Wimpy in the Popeye cartoons who would “…gladly pay you Tuesday for a hamburger today.” Following that analogy, who is following Wimpy for the repayment on Tuesday?

And what does “made available” mean? Not mandated. Not required. Because a president’s executive order, while having the force of law, has NO FUNDING.

The purse strings of this nation are in the hands of Congress.

So, say I am an employer with 40 employees - all of whom make less than $100,000 a year. And let’s assume that my employees have heard about this “holiday” from paying the 6.2% Social Security tax. If each of my employees makes $4,000 bi-weekly, then each of them would receive an additional $240 in their net paycheck each bi-weekly pay period beginning Sept. 1 through the end of the calendar year.

Not bad - an additional $1,900 in their pockets between now and Dec. 31. One small catch: As the employer, I might or might not decide to make this deferral available.

But what happens, come the first pay period in January? It’s hard to see four weeks into the future in this environment, let alone four months; especially with some entities threatening lawsuits to halt this executive order.

But as we speak, presumably, the regular 6.2% payroll tax will go back into effect Jan. 1, to be withheld again. The additional 6.2% that was “put off or postponed” for the previous four months would now be recouped by the federal government, leaving each of the employees with paychecks that are now $480 less than they were in December.

But not to worry - this same executive order says that the Secretary of the Treasury “shall explore avenues, including legislation, to eliminate” the payback of the deferred Social Security taxes.

So is this a sort of loan from the federal government? A gift? I can’t wait to find out.

Fran Coet is a partner in the accounting firm of ATLAS CPAs and Advisors in Westminster, www.AtlasCPAs.com. Call 303-426-6444.

Comments

Our Papers

Ad blocker detected

We have noticed you are using an ad blocking plugin in your browser.

The revenue we receive from our advertisers helps make this site possible. We request you whitelist our site.