IRS issues guidance implementing Trump’s payroll tax deferral order

The IRS late Friday released guidance implementing President Trump’s executive order from earlier this month on deferring payroll taxes.

The release of the three-page notice comes just days before the Tuesday start date for the deferral period.

Under the guidance, employers can opt to not withhold Social Security payroll taxes from their employees’ paychecks from September through December. To pay the amounts that were deferred, the amount of Social Security payroll taxes withheld from employees’ paychecks would increase from Jan. 1 through April 30.

Employers can only defer payroll taxes for employees who make less than $4,000 on a biweekly basis.

Trump signed a memo on deferring payroll taxes earlier this month in an effort to provide relief to workers amid the coronavirus pandemic. He has said he would forgive any deferred taxes if he wins reelection in November, though such a move would require congressional action.

A number of business groups have raised concerns about the order, arguing that there are some uncertainties about how it would apply and that a deferral could be challenging for employees who could face more taxes next year. Many businesses are not expected to implement a deferral, and are expected to continue to withhold payroll taxes from their employees’ paychecks.

“The guidance continues to leave many practical questions unanswered. However, it makes clear that employees will be required to pay more taxes beginning in January to offset any benefit they receive now,” Neil Bradley, executive vice president and chief policy officer at the U.S. Chamber of Commerce, said in a statement Friday. “The only way to achieve a workable proposal is for Congress and the administration to come together and enact a change in the law.” 

Tax experts said the guidance leaves a number of key questions unanswered, such as what happens if an employee leaves a company before April 30, and how the guidance applies to seasonal workers and employees with irregular hours.

The IRS notice states that if necessary, employers “may make arrangements to otherwise collect the total Applicable Taxes from the employee.”

Seth Hanlon, a senior fellow at the left-leaning Center for American Progress, said Friday that “there’s a lot of situations where this guidance doesn’t provide any guidance.”

Kyle Pomerleau, a resident fellow at the right-leaning American Enterprise Institute, said that “the guidance didn’t really answer all that many of businesses’ or the tax community’s questions.”

– updated at 9:13 p.m.