Don't Mess With Taxes

Representatives also introduce legislation to overturn executive payroll action, which also affects members of the military.

Internal Revenue Service workers are among the federal employees who will see their upcoming paychecks reflect Donald Trump's payroll tax deferral order. Some lawmakers say workers should get to make the final decision on their withholding. (Photo by David Boeke via Flickr)

Maryland and Virginia, the two states that border the District of Columbia, are home to hundreds of thousands of federal employees.

So it's no surprise that the four U.S. Senators representing those states — and workers who get checks from Uncle Sam — are among the almost two dozen lawmakers who sent a letter to Trump Administration officials expressing concern about the forced payroll withholding schedule to take effect later this month.

Maryland Sen. Chris Van Hollen spearheaded the bipartisan communication to Treasury Secretary Stephen Mnuchin and Office of Management and Budget (OMB) Director Russell Vought, asking that workers be given the chance to choose whether to participate.

Sen. Benjamin Cardin of Maryland, who like Van Hollen is a Democrat, also signed the letter. So did the two Democratic Senators from the Old Dominion, Tim Kaine and Mark Warner.

Those four Senators and 19 of their colleagues (16 Democrats, two Independents and one Republican) in the Upper Chamber argue that federal workers and uniformed service members across the country are being used as political pawns by Donald J. Trump.

White House unilateral tax action: Trump's Aug. 8 executive memo calls for the Social Security portion of the Federal Insurance Contributions Act (FICA) tax, which is 6.2 percent of a worker's pay withheld each pay period.

The White House's thinking is that workers will spend the extra pay, giving the COVID-hampered economy a boost.

But as noted in the memo and coverage since it was issued, including this post on the ol' blog about federal workers being used as payroll tax guinea pigs, the temporary cessation of this tax's collection is just a deferral. It is not a waiver or tax holiday.

The Social Security payroll taxes, which support the federal retirement system's trust fund, must be paid back.

That would happen next year. The concern is that workers might not realize that requirement and will be unpleasantly surprised when they essentially face a pay cut next year when the payroll tax payback starts showing up in their checks.

Different takes on employee payroll options: The Senators argue in their letter that two major accounting firms, KPMG and PwC, read Trump's memo and the subsequent somewhat unclear guidance in IRS Notice 2020-65 differently when it comes to employee participation.  

The notice, they write:

…does not answer many key questions, but KPMG concludes that it "appears" to give employers the option to, "Permit deferrals only at the employee's election." PwC states that employers may want to provide this option to their workers, noting that, "The reduced take-home pay in early 2021 as a result of the additional withholding for the deferred Social Security tax may make some employees not want to participate in the deferral, even if their employer opts in."

Three more payroll tax questions: In addition to seeking clarification from Mnuchin and Vought about federal employees' apparent, for now, forced payroll tax deferral set to take effect on Sept. 18, the Senators have a few more questions about the plan.

They want to know:

1. If an employee or service member separates from their job prior to repaying deferred payroll taxes in their 2021 withholdings, will their employing agency or the IRS seek to collect unpaid payroll taxes from that employee? If so, how will they do so?
2. The cost estimate for federal agencies to pay the employee payroll taxes that they are unable to withhold or otherwise recoup as a result of the deferral.
3. How will federal agencies communicate key information about the payroll tax deferral to their workers, particularly regarding the reduction in take-home pay in 2021?

With the payroll withholding changes just 9 days away, the Senators want answers as soon as possible from Mnuchin and Vought.

Military members, too: On the other side of Capitol Hill, Rep. Donald S. Beyer Jr. (D-Virginia) slammed the Trump Administration's decision to require the withholding from members of the armed forces.

Beyer, a member of the tax-writing House Ways and Means Committee member, warning in a Sept. 8 news release that it will "give the illusion of pay increases until after the election."

Then in January, said Beyer, "military families will see their paychecks reduced." Many may not be equipped to deal with the de facto pay cut in 2021, noted Beyer, who called the required deferral "a disgraceful way to treat those who serve and sacrifice to keep us safe."

Beyer also cited legislation introduced last week by Rep. John Larson (D-Connecticut) and which Beyer is cosponsoring to overturn Trump's payroll tax deferral executive action.

Bipartisan, geographically wide signers: While the Maryland and Virginia lawmakers' interest in the federal workers' payroll tax plight is not surprising, 19 Senators from other states across the country also signed the Van Hollen letter.

They are Democrats Chuck Schumer of New York; Sherrod Brown of Ohio; Tammy Baldwin of Wisconsin; Elizabeth Warren of Massachusetts; Jeff Merkley and Ron Wyden of Oregon

Dick Durbin and Tammy Duckworth of Illinois; Sheldon Whitehouse and Jack Reed of Rhode Island; Richard Blumenthal of Connecticut; Tom Carper of Delaware; Patty Murray of Washington; Mazie Hirono of Hawaii; Kyrsten Sinema of Arizona; and Amy Klobuchar of Minnesota.

Bernie Sanders of Vermont and Angus King of Maine, both Independents, also signed, as did King's Maine colleague Susan Collins, the lone GOP signer.

Federal jobs nationwide: Why such interest from lawmakers coast to coast?

Because it's an election year and political stunts, even well-intentioned ones, are not limited to one part of Capitol Hill.

Also because the lead taken by a Maryland Senator notwithstanding, workers across the country get federal paychecks.

The federal government has about 2 million full-time employees. That doesn't count the 600,000 or so who work for the quasi-governmental U.S. Postal Service. And we can't forget the more than a million active duty members of the military.

That's a lot of paychecks across the United States that won't have Social Security taxes withheld this year, then make-up withholding added in 2021.

The vast majority of all federal employees — about 79 percent — work outside the D.C. region, according to Governing.com. That online publication notes that as of June 2018, the jurisdictions with the most federal civilian employees were California, the District of Columbia, Virginia, Maryland and Texas. (Personal side note: Lone Star State Sens. John Cornyn and Ted Cruz, where are your signatures?)

Governing.com has a special, interactive web page where you can take a look at the federal workforce and numbers of employees by agency in your state.

You also might find these items of interest:

• Self-employed left out of Trump payroll tax cut…for now 
• Trump COVID executive actions sidestep stalled Congressional relief talks
• What a COVID-related payroll tax cut could mean to you now and your retirement later

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