Lawmakers Haven’t Given Up Making Payroll Tax Deferral Optional for Federal Employees

October 7, 2020 1:41 PM
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Lawmakers in both the House and Senate still have not given up on their demands to make the Trump administration’s temporary payroll tax deferral optional for federal employees.

President Trump enacted a temporary deferral on payroll taxes via an executive order that went into effect at the start of September. As soon as it was announced that it would apply to federal employees and that they would not have the option of opting out of it, lawmakers began lining up to make their case against it.

The consternation arises from the fact that deferring the tax now means that a larger tax bill will be due in the early part of next year, likely resulting in a bigger paycheck right now but a smaller one when the taxes are repaid.

The latest push to make the payroll tax optional is coming in response to a statement Treasury Secretary Steve Mnuchin made in a Congressional hearing recently.

Senator Chris Van Hollen (D-MD) wrote in a letter to Mnuchin and Office of Management and Budget Director Russel Vought that Mnuchin said in response to questioning from Van Hollen that it would be “reasonable” to let federal employees opt out of the payroll tax deferral.

“On September 24, in response to my question about this issue during a Senate Banking Committee hearing, Secretary Mnuchin testified that it would be ‘reasonable’ for the payroll tax deferral to be voluntary, ‘if people don’t want to participate.’ Secretary Mnuchin also testified that he would follow up with the Office of Management and Budget about this issue,” wrote Van Hollen.

On the House side, a group of Congressmen sent their own letter in which they stated that there is “widespread concern” among federal employees about the mandatory payroll tax deferral and urged Mnuchin to act on the statement he made in the hearing.

“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,” the lawmakers stated in their letter.

Whether or not the payroll tax deferral will become optional for the federal workforce remains to be seen.

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Ian Smith is one of the co-founders of FedSmith.com. He enjoys writing about current topics that affect the federal workforce.

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