Legislation Would Make Payroll Tax Deferral Optional for Federal Employees

October 9, 2020 7:03 PM , Updated October 21, 2020 2:49 PM
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Senator Chris Van Hollen (D-MD) has introduced legislation (S. 4810) that would make President Trump’s payroll tax deferral optional for federal employees.

Some lawmakers have been pushing Trump administration officials to allow federal employees the option to opt out of having their payroll taxes deferred under President Trump’s recent executive order. Van Hollen is one who has been leading the effort and represents a state that is home to many federal employees.

The chief complaint about the payroll tax deferral has been that because it is a deferral rather than tax forgiveness, the taxes will be owed after the first of the year and will likely result in smaller than usual paychecks to recoup the deferred taxes. Many private sector employers have made the deferral optional but that has not happened for the majority of the federal workforce. The Postal Service announced recently that it would not be implementing the payroll tax deferral.

Van Hollen recently sent a letter to Treasury Secretary Steven Mnuchin and Office of Management and Budget Director Russel Vought urging them to make the payroll tax deferral voluntary for federal employees. Van Hollen said in his letter that Mnuchin had recently stated during a Congressional hearing that it would be “reasonable” for the payroll tax deferral to be voluntary.

“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.

Apparently the Senator has his doubts about the likelihood of the payroll tax deferral being made voluntary by administration officials since he introduced the bill.

According to the text of the bill as written, having the taxes deferred would require employees to opt in via written consent. The legislation reads, “…the withholding and payment of the tax…shall not be deferred…unless the employee provides written consent to such deferral…”

If an employee does not provide the written consent, liability would fall upon the employer “for any failure to withhold and remit the taxes.”

“President Trump is using federal employees and our troops as pawns in his payroll tax scheme, and it’s unacceptable. During this time of heightened uncertainty, our public servants deserve the ability to choose what makes most sense for them and for their pocketbooks. That’s why the President’s payroll tax deferral must be made optional. Since this move has been described as ‘reasonable’ by President Trump’s own Treasury Secretary, I urge the Congress to act quickly on this commonsense measure,” said Van Hollen.

The legislation has 16 co-sponsors.

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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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