Monday, August 31, 2020

There Will Be No Postponing Social Security Taxes

 Among the items that President Trump issued an "executive action" about three weeks ago was that for people earning less than around $104.000 per year, their fica taxes were to be postponed until Jan. 1, not cut, merely postponed, although Trump made noises that if he is reelected he will simply eliminate the fica tax entirely, although unclear how he plans to fund Social Security without it.  

Anyway, Allan Sloan in the Washington Post reports that this initiative is now just completely dead in the water.  It has too many problems, too many opponents, and action on implementing it in the Treasury Department has simply stalled out, almost certainly for good due to all this.  Quite aside from people facing potentially huge fica tax bills in January due to four months of postponement, it apparently is very complicated to set this up, and would take many months to do so, involving businesses and the Treasury Dept. having to put in place all kinds of mechanisms to figure out exactly which people would get their taxes postponed and which would not.  A real killer is that businesses pretty much across the board have objected to this proposal, with this now official as 30 different such groups have called for the cessation of this effort through the US Chamber of Commerce.  This is just going nowhere.

This should be contrasted with the temporary fica tax cut that Obama had in place during 2011-2012. There are two large differences between that and what Trump has so incompetently proposed. One is that Obama had it pass through Congress, not be the result of a presidential directive or memo.  The other is that it was completely simple: all Social Security taxes stopped being collected for the period in question, not a system based on treating people differently based on their incomes and also not a postponement.  It was a straight cut, if only a temporary one.

An odd aspect of that Obama cut was that when it came to an end the GOP members of Congress were pretty near unanimous in voting to end it and bring back fica taxes.  Somehow this did not prevent them from continually ranting about supporting tax cuts and opposing all tax increases.  Of course it was technically not an increase but simply undoing a cut, but funny how something that raised taxes more on poorer people received their ready support as they argued for cuts for higher income people and still do.

Barkley Rosser

13 comments: said...

Apparently President Trump is imposing this payroll scheme on federal workers. Those earning less than $100,000 per year will have no fica tax withheld from their paychecks starting Sept. 16 through the end of the year, but then will have twice as much withheld starting Jan. 1 until what was not paid is paid for. Does he think this will make any of them vote for him who were not going to already? Sheesh.

Fred C. Dobbs said...

Trump’s Payroll Tax Deferment Plan Goes Into Effect

via @forbes - August 28

President Trump’s plan to defer payroll taxes was set into motion Friday, with the Treasury Department outlining how the executive action would work just four days before the initiative meant to provide an economic boost was set to take effect.

The initiative postpones some payroll taxes that would normally be due between September 1 and December 31 and makes them due between January 1 and April 31, 2021.

Under the plan, which would only apply to workers with an annual salary of less than $104,000, employers are asked to stop withholding the 6.2% payroll tax that represents an employee’s share of Social Security taxes.

Employees would still be responsible for the taxes, just not immediately—that means employers who stop withholding payroll taxes now, would be able to withhold twice as much early next year.

Trump wants Congress to forgive the deferred tax payments, but some employers fear that if they stop withholding taxes without a guarantee the deferred payments will be forgiven, they’ll be stuck with the bill, a particular risk if a worker should leave their employer before 2021, meaning the company won’t be able to deduct it from future paychecks.

Employers can choose whether to opt in to the deferral plan.

Trump's August 8 executive action temporarily suspending payroll tax collections came as negotiations in Congress deadlocked over a new coronavirus stimulus package. Earlier this month Trump said if he was reelected, he would get rid of the payroll taxes permanently, though White House officials said afterward such a plan isn’t currently under consideration. If Trump were able to permanently cut payroll taxes, and if such a law went into effect on January 1, 2021, Social Security payments would run out by mid 2023, according to Social Security Chief Actuary Stephen Goss.

“The guidance makes it clear the only purpose of this scheme is to give the illusion of a tax cut before the election,” Seth Hanlon, senior fellow at the Center for American Progress, a group aligned with Democrats told the Wall Street Journal.


Trump Administration Begins Payroll Tax Deferral Plan (Wall Street Journal)

Employers Cast Wary Eye on Trump Payroll-Tax Deferral (Wall Street Journal)

Social Security Fund Would Be Empty By 2023 If Payroll Taxes Were Cut, Actuary Estimates (Forbes)

Fred C. Dobbs said...

(This does not appear to be limited to Federal workers.)

Trump’s payroll tax deferral is supposed to start today

President Donald Trump’s executive memorandum deferring payroll taxes technically goes into effect Tuesday, but many employers may not offer the option to defer until later in September or even October because of late government guidance on implementation.

The Treasury Department and the Internal Revenue Service (IRS) released guidance on how to implement the deferral on Friday, leaving just one business day for employers and payroll processors to get their payroll systems ready.

Some employers may forgo offering the deferral altogether, which is an option.

“[Employers] inherit all of the liability, all the responsibility, and all the workload associated with repaying the deferred amounts,” Pete Isberg, vice president of government affairs at ADP, the massive payroll solutions company, told Yahoo Money. “That’s great from an employee’s perspective, but it might affect whether employers are interested in doing this in the first place.”

ADP plans to be ready to process deferrals starting in early September, according to Isberg. Other employers, especially those who process their own payrolls, may not be able to offer the deferral until late September or even October.

“Social Security taxes were designed in payroll systems to administer a single tax rate that is applied to everybody equally for the whole year,” Isberg said. “And here, we’re making a rate change for part of a year in the middle of a quarter and it applies to some employees. That’s a lot of work to do with one business day to do it.”

Some employers have already processed payrolls for the first week of September, missing the first paycheck that the deferral could be applied towards.

The guidance on Friday cleared up eligibility requirements, which was the simple fix, Isberg said. Like the president’s memorandum stated, employees who make less than $4,000 biweekly can keep the 6.2% tax they would normally pay into Social Security, starting Sept. 1 and ending Dec. 31 of this year. There was no phase-in for those making just over the maximum.

But employers are shouldering the liability for the payback of the deferral, since Congress has not forgiven the deferral. To do that, employers must withhold double the Social Security tax in paychecks from January to April for workers who opt for a deferral.

That requires employers to calculate the total deferral amount for each eligible employee who wants to opt in, so that enough is withheld in next year’s paychecks to satisfy the tax requirement.

Second, employers must make it clear to employees that while they will have more in their paychecks for the rest of this year, they will get smaller paychecks in the first four months of 2021, since employers are withholding more tax.

About 100 million workers are eligible for the deferral, Isberg said, but not all may not want to opt in. Employers would need to track who opts in and who doesn’t, along with potentially allowing workers to opt back out later in the year after originally choosing to defer.

“They’re going to want to also ask each employee separately: ‘Do you want to do this?’” he said. “Because some employees are going to look at it and say: ‘It’s just a deferral.’” ...

Fred C. Dobbs said...

(It appears participation in FICA tax deferral is 'voluntary' for employers,
and they may be in legal trouble if they do so. Trump, being Federal CEO,
opts to do the deferral thing. Go figure!)

IRS Issues Notice 2020-65 Providing Guidance on Employee Social Security Tax Deferral

Late Friday, the IRS released Notice 2020-65 providing guidance to employers regarding the implementation of President Trump’s presidential memorandum issued on August 8, 2020. The memorandum directed the Secretary of the Treasury to defer the withholding, deposit, and payment of employee Social Security taxes for the period from September 1 to December 31, 2020 (see earlier coverage of the presidential memorandum). Shortly after the memorandum was released, Secretary Mnuchin confirmed that the deferral is voluntary and that employers may continue to withhold and deposit employee Social Security taxes in accordance with their normal schedule (see earlier coverage of Sec. Mnuchin’s confirmation that deferral is voluntary).

Although brief, Notice 2020-65 does answer some key questions for employers. The presidential memorandum left unclear which employees would be eligible for the deferral stating that it applied to employees who generally have wages (for purposes of FICA taxes) of less than $4,000 per bi-weekly pay period, or the equivalent amount for pay periods of other lengths (e.g., $2,000 per weekly pay period, $4,333 per semi-monthly pay period). Notice 2020-65 clarifies that the determination of whether an employee is eligible for the deferral of the employee’s share of Social Security taxes must be determined on a payroll-by-payroll period. In other words, if an hourly employee’s wages are below the pay-period threshold for a pay period, the employee’s share of Social Security taxes may be deferred. If in the following pay period, the employee’s wages exceed the threshold, the employee’s share of Social Security taxes must be deposited on time. ... said...

Right. It is imposed on fed workers, but for private sector and local govts needs them to do stop withholding, but almost none will be following through. This will be done to the fed workers pretty much only.

ilsm said...

Interesting. I cannot speak for feds I retired in 2003. Early retired I am not that old.

Fred C. Dobbs said...

(Not even vaguely related)

US added 1.4 million jobs in August as unemployment fell to 8.4%

NY Times - September 4

Employers continued to bring back furloughed workers last month, but at a far slower pace than in the spring, and millions of Americans remain out of work.

The U.S. economy added 1.4 million jobs in August, the Labor Department said Friday, down from 1.7 million in July and down sharply from the 4.8 million added in June. Payrolls are still more than 11 million jobs below their pre-pandemic level.

The unemployment rate fell to 8.4 percent, down significantly from 14.7 percent in April and 10.2 percent in July. The drop brings the rate below the peak of the last recession a decade ago, when unemployment briefly hit 10 percent, but joblessness is still higher than the peak of many past recessions. ...

Fred C. Dobbs said...

Trump denies his administration is cutting funding for Stars and Stripes

after Pentagon orders it to shut down

AP via @BostonGlobe - September 4

WASHINGTON — The Pentagon has ordered the military’s independent newspaper, Stars and Stripes, to cease publication at the end of the month, despite Congressional efforts to continue funding the century-old publication.

The order to halt publication by Sept. 30, and dissolve the organization by the end of January, is the latest salvo in the Pentagon's move earlier this year to cut the $15.5 million in funding for the paper from the department's budget. And it is a reflection of the Trump administration's broader animosity for the media and members of the press.

In a tweet on Friday, President Trump denied that his administration was cutting the newspapers’ funding. ...

Fred C. Dobbs said...

The Pentagon has ordered Stars and Stripes to shut down for no good reason

via @usatoday - September 4

... In a heretofore unpublicized recent memo, the Pentagon delivered an order to shutter Stars and Stripes, a newspaper that has been a lifeline and a voice for American troops since the Civil War. The memo orders the publisher of the news organization (which now publishes online as well as in print) to present a plan that “dissolves the Stars and Stripes” by Sept. 15 including "specific timeline for vacating government owned/leased space worldwide.” ...

As a publication that’s underwritten by the military but not answerable to the brass, Stars and Stripes embodies that most American of values: the right to speak truth to power.

ilsm said...

Will Trump stop withholding SS from military pay?

Stars and Stripes.....

I have never read it nor do I recall seeing a copy. I never got around that much. it was not seen in Alaska in early mod 70's.

I do not know if the Globe or USA Today know the GI gets "news & views" specific to them w/o needing Stars And Stripes.

Today we have AF Times, Army Times, Navy Times, etc. you get my drift, there are commercial source "papers" for the GI!

There is also "Military Times" which seem to be aligned with the Atlantic and other anti Trump (neocon views, like the 70 national security has beens who endorse antifs pandered Biden...) supposed news outlets.

I suggest Stars and Stripes was competing with private press which is not good in a democracy.

Fred C. Dobbs said...

(Yer welcome.)

What Does the President's Payroll Tax Announcement Mean for Military?" - August 10

Last week, President Donald Trump issued a memorandum that would defer the payment of payroll taxes for most military members, effective Sept. 1, 2020, through Dec. 31, 2020.

The memo applies if you make less than $104,000 a year in taxable income, which is generally anyone with a paygrade below W-5 or O-5 -- but could leave you owing money out of your paycheck later. ...

At this time, there is nothing for you to do. If the payroll tax deferral does happen, any change will be handled for you by DFAS, and your paycheck will be slightly larger due to the taxes that aren't withheld.

If that happens, you'd be wise to take that money and put it aside into a savings account in case you need to repay it in the future. We'll keep you updated when and if there are any changes to this situation.

Fred C. Dobbs said...

W-5 is the pay grade for senior-most Warrant Officers.

"Warrant officers hold warrants from their service secretary and are specialists and experts in certain military technologies or capabilities. The lowest-ranking warrant officers serve under a warrant, but they receive commissions from the president upon promotion to chief warrant officer 2. These commissioned warrant officers are direct representatives of the president of the United States. They derive their authority from the same source as commissioned officers but remain specialists, in contrast to commissioned officers, who are generalists. There are no warrant officers in the Air Force."

O-5 is the pay grade for Lieutenant Colonels & Commodores.

"The commissioned ranks are the highest in the military. These officers hold presidential commissions and are confirmed at their ranks by the Senate. Army, Air Force and Marine Corps officers are called company grade officers in the paygrades of O-1 to O-3, field grade officers in paygrades O-4 to O-6 and general officers in paygrades O-7 and higher. The equivalent officer groupings in the Navy are called junior grade, mid-grade and flag."

Fred C. Dobbs said...

Err: "O-5 is the pay grade for Lieutenant Colonels & Commanders."

Commodore "is no longer a specific rank within Active Duty or Reserve ranks, but it continues to be used as an honorary title within the U.S. Navy and the U.S. Coast Guard ... for those senior captains (pay grade O-6)" ... (Wikipedia)