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A Bill to Make The Payroll Tax Deferral Optional

A Bill to Make The Payroll Tax Deferral Optional

Federal Benefits Financial News Human Resources

By Nicole Ogrysko


Members of Congress made their latest attempt Friday to give federal employees and servicemembers a choice to participate in the president’s payroll tax deferral.

Sen. Chris Van Hollen (D-Md.) introduced new legislation, the Protecting Employees from Surprise Taxes Act, which would simply make the president’s payroll tax deferral optional.

Anyone who chooses to participate must provide written consent to their employer, according to the legislation. The bill applies to all employees and employers, including federal employees and servicemembers. The executive branch is one of the few, if not only, employers enforcing the payroll tax deferral policy. Few private sector employers have chosen to implement it, and other government entities not in the executive branch have made similar decisions. The U.S. Postal Service announced late last month it wouldn’t implement the president’s payroll tax deferral for its workforce.

Van Hollen’s bill has 15 co-sponsors, all of them Democrats. More than a dozen federal employee organizations and unions have also endorsed the legislation, including the American Federation of Government Employees, National Treasury Employees Union, National Federation of Federal Employees, Senior Executives Association, Professional Managers Association and the National Active and Retired Federal Employees Association. “The federal government — or any employer — should not force its employees to take on debt through deferred payroll taxes that must be repaid next year,” Ken Thomas, NARFE national president, said in a statement. “This bill would give employees the choice, placing the decision-making authority in the hands of the individual affected, where it ought to be.”

It’s unclear when exactly the Senate would consider this bill in time to make a difference for federal employees and servicemembers, with Supreme Court nomination hearings scheduled to begin next week and the prospects of COVID-19 stimulus bill negotiations changing by the hour. The concept of making the payroll tax deferral optional, however, does have some bipartisan support. A group of 43 House members asked Treasury Secretary Steven Mnuchin last week to give federal employees and servicemembers a choice in participating in the deferral. More than 20 senators, including at least one Republican, have also written to the administration with their concerns.

The major federal payroll providers began deferring Social Security taxes from employees’ and servicemembers’ paychecks last month. Employees and military members whose basic, taxable income is $4,000 or less during a biweekly pay period are subject to the deferral. The deferral is expected to run through the end of the year. Federal employees and servicemembers will need to pay deferred taxes back over the course of next year’s paychecks from January through April.

Meantime, military officials, unions and lawmakers have worried the payroll tax deferral will come as a surprise to the civilian and military workforce, especially young servicemembers, who will see the extra cash in their paychecks now and spend it, leaving them unprepared to pay it back in 2021.

In a recent Senate hearing, Mnuchin told Van Hollen “it was reasonable” if federal employees didn’t want to participate in the payroll tax deferral. He said he would follow up with the Office of Management and Budget, which is in charge of the policy’s implementation in the executive branch.

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