Federal Workers Face Payroll Tax Deferment



The payroll tax holiday executed by President Trump in early August took effect on Sept. 1, and though the private sector seems largely to be waiting for guidance or opting out, according to CNBC, the U.S. government is requiring eligible federal employees to participate, including military personnel as early as mid-September. On the surface, a tax holiday in the midst of a pandemic-ravaged economy sounds like a viable measure to lessen the burden of American taxpayers, the details add complexity to the issue.  

Since payroll taxes are the majority funding vein of Social Security, the loss of funding from Sept. 1 through the end of the year will have to be repaid somehow. The president has the authority to defer payroll taxes, according to Forbes, but Congress will ultimately decide if those deferments can be forgiven. That uncertainty is the driving factor behind the private sector’s hesitance to participate and why federal union leaders and lawmakers are pushing for a similar option for federal workers.   

So, how are Michigan CPAs advising their clients on the matter? According to MICPA member Ben Rybicki, CPA, at Doeren Mayhew, it depends. “Clients are considering multiple options and issues with the tax holiday.” While a one-size-fits-all solution is ideal, he explained that is not what CPAs are experiencing. “Each client has unique issues they are dealing with regarding current stimulus and stimulus already received, and we are working on client issues that need to be addressed client by client based on their facts and circumstances.”  

According to Ed Karl, vice president of the AICPA, however, limiting risk associated with deferring payroll taxes should be prioritized, the Detroit Free Press reports. In regard to any potential layoffs and turnover that occurs between now and the end of the year, Karl added that the questions employers should be asking themselves is: “Are you going to collect from all those people who lost their jobs?”  

For employers struggling to make ends meet, this is indeed a tough decision. Rybicki empathized, adding, “Politically, this is a hot issue for employers. Federal and state governments have implemented several stimulus programs to assist with Covid-19 related matters.” Regarding on-going concerns beyond the payroll tax, he said, “From an employer standpoint, concerns exist in all industries regarding employee reintegration into the workforce, both for the employees and employers. In public accounting, we have been able to mitigate employee matters by investing in technology, allowing working from home. However, as we head into the 2021 tax season, training of new employees, integration of those employees, site visits to our clients…[all] pose significant challenges to the industry.” 

Source: MICPA

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