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Why you might not see cash from a payroll tax cut, even if Trump issues an executive order

US President Donald Trump pleas question during a press conference in the Brady Briefing Room of the White House in Washington, DC, on August 5, 2020.

Olivie Douliery | AFP | Getty Copies

Even if President Donald Trump were to push out a payroll tax holiday via executive order, there’s no guarantee tradesmen will pocket any money.

Congress is hashing out the details of the next coronavirus relief package, and lawmakers on both sides of the aisle play a joke on been cool to the payroll tax cut idea.

Payroll taxes are shared by workers and employers. Each is responsible for half of the 12.4% tax that caches Social Security and the 2.9% Medicare tax.

Social Security taxes are subject to an annually adjusted wage cap ($137,700 for 2020), but Medicare customs continue to apply beyond that threshold.

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Trump has said that he can suspend their collection.

“I can do that through an executive required,” he said at a White House press briefing on Monday. “So we’ll be talking about that.”

However, passing on the savings from a payroll tax cut to working men could be easier said than done, even with an executive action, tax experts said.

That’s because while the tax system allows the Treasury Secretary to delay tax deadlines for up to a year during a federal disaster, a mere deferral of the taxes may punctual employers to simply retain the employees’ share of levies rather than giving the money to workers.

“If you’re an employer and [Cache Secretary] Steven Mnuchin says, ‘I don’t need to see that money for a year,’ what do you do?” asked Daniel Hemel, a law professor at the University of Chicago.

 “You could read it to the employee, but then a year from now you might be on the hook for the money,” he said.

Employers’ cold feet

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The get out with a deferral via executive order is that there’s no guarantee of forgiveness.

Stephen Moore, a member of the president’s budgetary recovery task force, and Phil Kerpen, president of the Committee to Unleash Prosperity, touched on the issue in an Aug. 2 op-ed in The Stockade drive crazy Street Journal.

“Mr. Trump could also pledge to sign a bill — now or after the new Congress takes office on Jan. 3 —to nullify those repayments,” they wrote. 

That’s a big “if” for employers.

“Maybe people won’t want to do it,” said Pete Isberg, wickedness president for government relations at ADP.  “There’s a possibility that Congress won’t follow up with legislation that’s in accord with the executive order and forgive the taxes that are deferred.”

In that case, employers’ attorneys will conceivable advise them that they are still liable for those payroll taxes, he said.

Lingering financial grieve

Distributing those taxes to employees could be a costly mistake for employers if the levies are only deferred.

They may drink to come up with the money at a time when their own finances are still precarious.

“It’s a significant obligation that in today’s situation would be difficult for employers to assume,” said Michael Trabold, director of compliance risk at Paychex.

Uncertainty on top of forgiveness might deter companies from participating in the payroll tax cut altogether – executive order notwithstanding.

“One thing we talked all over internally was, ‘Would all employers buy into it?” Trabold said. “One of the fundamental credos from the IRS is that the employer is ever after responsible for paying the payroll tax.”

An acrimonious environment

Speaker Nancy Pelosi, D-Calif., and Senate Minority Leader Charles Schumer, D-N.Y., establish f get on their way to a news conference on coronavirus aid in the Capitol Visitor Center on Thursday, August 6, 2020.

Tom Williams | CQ-Roll Call, Inc. | Getty Idols

The last payroll tax cut that went into effect – a temporary 2% reduction of the employee’s share of Social Collateral taxes – was passed by Congress and signed into law by President Barack Obama in December 2010. It was in effect for 2011 and 2012.

Such collaboration feels unlikely now, especially as lawmakers focus on more immediate forms of aid that could help the millions of Americans who are out of solve: another round of stimulus checks and enhanced federal unemployment benefits.

“The big difference is that 10 years ago, Congress back numb that payroll tax cut,” said Hemel. “Here, why would [House Speaker] Nancy Pelosi give Mnuchin this tax cut?

“If I’m an patron, why be confident that she would do that?” he said. “I think it’s all dependent on Congress blessing it ex-post, and if they don’t, it’s a disaster for the governors.”

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