What President Trump’s 'payroll tax holiday' means for businesses and employee paychecks
MILWAUKEE (CBS 58) -- Tuesday, Sept. 1 marks the first day of what some call a ‘payroll tax holiday.’
President Donald Trump signed an executive order in August to put more money into workers’ pockets by temporarily suspending Social Security taxes on paychecks, but the measure leaves many questions unanswered.
“He couldn’t give us money so instead he’s delaying the collection of the Social Security taxes of employees,” said LJ Suzuki of CFOShare.
Experts say the executive order was done out of frustration Congress wasn’t doing more.
CFOShare, who provides accounting and finance services for small businesses, says the payroll tax holiday would put more money into employees’ paychecks by deferring Social Security tax until the end of the year, but it’s not as peachy as it sounds.
“Even though we wouldn’t pay that tax from now through the end of the year, we would have to pay double taxes starting January and running through April of 2021,” said Suzuki.
Some political experts say the executive order on payroll tax is not good government, regardless of whether or not you like the president.
“He’s sort of saying, ‘I’m already cutting your taxes and if you reelect me, then maybe I’ll convince Congress to cut it legally,’ this is not a good situation,” said Mordecai Lee, Professor Emeritus at UW-Milwaukee.
Suzuki says the president’s intention was to do this now, and hopefully have Congress forgive the deferred taxes before the end of the year.
“Now President Trump himself doesn’t have the power to do that,” said Suzuki. “It has to be Congress that acts on that, so whether Congress acts on that or not is yet to be seen.”
“Secretary Mnuchin several weeks ago indicated that it was optional,” said Edward Karl, vice president of taxation for the Association of International Certified Professional Accountants (AICPS).
The AICPS says while the payroll tax deferral is optional for employers, there is not enough information for both employers and employees to make an adequate decision. The IRS has released guidance, but it left many questions unanswered.
For example, if an employer were to go ahead with the temporary tax cuts, what happens if their employee leaves before next year?
“It states that the employer should make arrangements for the repayment, so it’s a little bit troubling,” said Karl.
“In that case you, as the employer, are on the hook for those taxes and you’re never going to be able to recoup that from the employee that got terminated,” added Suzuki.
Suzuki says because there’s no punishment if employers don’t opt in, it’s better to standby and wait for more IRS regulations.
“Don’t get too hung up on this,” said Suzuki. “You’re in the middle of a COVID-19 crisis. You need to focus on sales growth, on cost management and on your business fundamentals.”