Clint Bain and Neil Burnette Legislative Co-Chairs
Hunter Moorhead, Legislative Consultant
On August 8th, President Trump signed an Executive Order (EO) that defers the payroll tax (OASDI deductions) from September 1 to December 31. The President’s actions define eligibility as employees earning less than $100,000 per year. Following the announcement, both government and private sector employees have questioned the benefit of deferring payroll taxes. As of today, employees and employers expect the tax will be collected next calendar year.
For those impacted, this opportunity will lead to higher take-home pay. Critics of the tax deferral have said that it simply amounts to pushing off the taxes into early next year—when employees may have forgotten that they are required to repay the benefit. IRS guidance issued last week states that affected employees will have to repay the suspended payments by April 30, 2021—although there will be no interest or penalties charged for repaying on time—unless Congress waives the obligation.
For now, our NASCOE family needs to plan appropriately assuming the short-term tax benefit will be repaid next year.
Can federal employees opt out of the deferral? The National Finance Center (NFC) released information announcing system modifications to the payroll system effective for pay period 17. The Department has indicated that they are currently researching the possibility of employees having the option to opt out. We expect FSA employees to see the additional funds in their bank account when pay period 17 is disbursed. The elimination of the withholding will vary by employee by PP, based upon any changes in their gross social security wages.
Do we expect Congress will approve legislation waiving repayment of the deferred taxes? Trump’s memo anticipated that the obligation would be waived, but there has been strong bipartisan opposition in Congress toward a waiver and no move toward it.
The NASCOE legislative team will monitor any movement of legislation by Congress regarding this tax deferral.