Legislation Introduced to Make Payroll Tax Deferral Program Optional

Senator Chris Van Hollen (D-MD) and over a dozen Senate Democrats introduced legislation, the Protecting Employees from Surprise Taxes Act, which would make the Trump administration’s tax deferral program optional for federal employees and service members. The legislation states that employees who wish to partake in the program must provide written consent to their employers.

The payroll tax deferral, which would defer the Social Security payroll tax from September 1, 2020 through the end of the year for employees who make less than $3,999 per biweekly pay period, had raised several questions and concerns when it was first announced in August 2020.

Members of the Ways and Means Committee released a letter in which they wrote, “We are especially alarmed that after many businesses and groups, including the U.S. Chamber of Commerce, have expressed concern about the ramifications of deferral for employers and employees, federal public servants are being used as guinea pigs.”

Independent agencies such as the U.S. Postal Service have said they will not be participating in the deferral program after reviewing the potential impact it would have on their employees.

The bill by Senator Van Hollen has 15 democratic co-sponsors and support from several unions and associations such as the American Federation of Government Employees, National Treasury Employees Union, and National Active and Retired Federal Employees Association.

Over 43 members of the House wrote a letter to Treasury Secretary Steven Mnuchin on October 2, 2020 requesting that the payroll tax deferral program be optional. At least 20 Senators, including one Republican, have also requested the same.

In the House letter, lawmakers stated, “Feedback from civil servants and service members we represent indicates that the withholding of payroll taxes has been chaotic and confusing for many of those affected. There is widespread concern among the ranks of both groups that deferred payroll taxes will lead to increased tax bills in January and potentially even fees for those who are unable to repay deferred taxes.”

In a recent Senate hearing, Senator Van Hollen expressed his concerns directly with Treasury Secretary Mnuchin. In response, Mnuchin said, “I’d be happy to follow up with the Office of Management and Budget who’s responsible. I think that’s a reasonable issue if people don’t want to participate, but let me follow up with them.”