Trump’s Payroll Tax Order Is Good Politics, but Doesn’t Offer Much Tax Relief
Listen to the Radio Rothbard version of this article.
President Trump issued a new executive order on August 8 directing the Treasury Department to defer the 6.2 percent Social Security tax on wages for employees making less than about $100,000 a year. The suspension on collections will be in effect from September 1 through December 31.
Unfortunately, the suspension on collections—which applies only to the employee share of payroll taxes—doesn’t amount to an actual tax cut, since collections could resume at any time after December 31. Moreover, once the September-December deferment period is up, employees would still be responsible for their tax liability back to September 1.
Potential Problems for Business Owners
If this is intended to be a “stimulus” policy of sorts, it may not accomplish what was intended. As the Wall Street Journal noted Tuesday:
[Trump’s] move…doesn’t change how much tax employees and employers actually owe. Only Congress can do that.
Employers’ biggest worry: If they stop withholding taxes without any guarantee that Congress will actually forgive any deferred payments, they could find themselves on the hook. That is a particular risk in cases where employees change jobs and employers can’t withhold more taxes from later paychecks to catch up on missed payments.
“The Internal Revenue Service will come to that deep pocket” of employers to collect payroll taxes, said Marianna Dyson, a lawyer at Covington & Burling LLP in Washington who specializes in payroll taxes. “Liability is going to stick to the employer like flies to flypaper.”
Any business owner who has navigated the hassles of payroll tax collection understands the problem here. The tax has gone away only temporarily. And come January, employers may have to make sure all the payroll tax obligations are paid back to September.
For many employers, this may be a paperwork nightmare
Article from Mises Wire