11/27/20
WASHINGTON—President Trump’s decision to defer payroll taxes until the end of the year is leaving challenges for lawmakers to manage after he leaves office in January, and they haven’t figured out what—if anything—to do. Members of Congress in both parties weren’t keen on the August executive action, which let employers stop collecting the 6.2% Social Security payroll tax from many workers in the final four months of 2020. The move was meant as a form of relief during the economic slump caused by the coronavirus pandemic, but few employers stopped withholding. That created a predicament for Congress. Employees whose payroll taxes temporarily shrank will face double withholding starting in January, which could pinch households that haven’t planned for it. Doing nothing could cause harm for those workers, but helping only them could be unfair to others whose taxes continued to be withheld. “No one will be happy no matter how that gets resolved,” said Mark Mazur, a former Obama administration official who now directs the Tax Policy Center. “It’s kind of like a no-win thing.” Mr. Trump couldn’t get Congress to cut payroll taxes, so he used the administration’s ability to defer tax deadlines after a disaster to delay payments of the employees’ portion of Social Security taxes. He promised that if he won re-election, he would push to turn that delay into a real tax cut.
“President Trump was waving his arm and saying don’t worry about it. You do worry about it,” said Rep. Richard Neal (D., Mass.), chairman of the tax-writing House Ways and Means Committee. Official figures aren’t available yet, but payroll processor Paychex Inc. said take-up has been very low. The one big exception—which could create pressure for Congress to act—is the federal workforce, including many members of the military. Mr. Trump required executive-branch employees to participate. Rep. Kevin Brady (R., Texas) introduced a bill to forgive all deferred taxes, which is backed by 28 other House Republicans. Allowing forgiveness at this point, after so many employers didn’t participate, would give a windfall to federal employees and nothing to millions of other workers. Lawmakers could just do nothing, which could create burdens for federal workers and military service members who face a drop in take-home pay in January and didn’t save the extra money they are getting in 2020. Mr. Neal said lawmakers would probably wait to address the issue until after a new Treasury secretary is confirmed. President-elect Joe Biden has selected former Federal Reserve Chairwoman Janet Yellen for that position. Mr. Biden’s transition team declined to comment.