“You’re just going to have a bunch of headaches,” said Murthy, who advises companies on their wage and benefit plans at the consulting firm Crowe LLP. “It’s a big cost and a lot of hassle.”
Businesses would have to worry about everything from the prospect of workers being surprised next year that they have to pay the money back, to the financial risk the plan presents to employers themselves.
And there are still a host of questions about how the program is supposed to work, from how it coheres with state laws and whether it is allowed under union contracts to what happens if companies can’t implement the program immediately.
The lackluster reception is a byproduct of the administration’s seat-of-the-pants policymaking.
The idea of Trump unilaterally postponing payroll taxes seemed to come out of nowhere, when conservative activists Stephen Moore and Phil Kerpen proposed it in an Aug. 2 op-ed in The Wall Street Journal. Six days later, it was in a presidential order issued in the wake of the collapse in negotiations in Congress over another coronavirus relief package.
The Treasury Department only released long-awaited guidance on the plan on Friday night, just three days before the program was to begin, giving employers almost no opportunity to prepare. The agency’s instructions ran just two-and-a-half pages.
Trump is hoping the initiative will boost paychecks, and the economy, before the November elections.
His order allows people to postpone paying the worker’s half of the 12.4 percent Social Security tax for the rest of this year. The break is limited to those earning less than $4,000 per biweekly paycheck, which could save some workers up to about $2,200 this year. Still, that money would have to be paid back next year.
Though Trump doesn’t have the power to cut the tax altogether, he is betting that Congress will eventually step in and waive the tax bills.
Rep. Kevin Brady of Texas, the ranking Republican on the House Ways and Means Committee, said Wednesday he would introduce legislation to do just that, even as Senate Democrats simultaneously announced a long-shot bid to kill the deferral plan.
A Treasury Department spokesperson did not respond to a request for comment.
Businesses had warned that many employers would not participate in the plan — it’s optional for them — even before the details were released. The guidance has done little to ease their worries, said Pete Isberg, a lobbyist for ADP, the payroll processing giant.
“It made it even less palatable for employers to want to do this,” he said.
Though White House economic adviser Larry Kudlow had floated the idea of giving workers years to pay back the deferred taxes, the guidance would have companies begin to recoup the money in January by doubling the payroll tax withholding in their workers’ checks. They’d have until the end of April to pay it back before penalties begin to kick in.
That’s making employers nervous about having to face employees returning from their holiday breaks complaining about shrunken paychecks.
“From an employee relations perspective, it’s very difficult to go into January and double withhold on these payroll taxes,” said Robert Delgado, who advises businesses on employee compensation at the accounting firm KPMG. “The amounts involved here can have a significant impact on their ability to pay their living expenses.”
At the same time, Treasury rejected a major demand by businesses: not to leave them on the hook for deferred taxes owed by workers who later leave. Many fear the IRS will expect them to cover postponed taxes owed by seasonal employees, for example, or workers who quit.
Among other issues: It would likely take companies some time to set things up if they decide to implement the program. Many businesses would want to give their workers the option of whether to participate, which means explaining how it will work, waiting for their decisions and contending with employees who change their minds.
But the administration didn’t explain how — or even whether — companies can implement the program retroactively to its Sept. 1 start date, if they are not ready to go until, say, Oct. 1. Yet during that time, when they are getting ready to implement the plan, the employers will still be collecting and depositing with the government payroll taxes on behalf of their workers, so would there be a way to get that money back?
“Do they get a refund from Treasury?” asked Delgado. “How does that work?”
Even as businesses shrug, the federal government is pushing ahead to implement it for its own workers.
“The president put forward this action to give relief to all Americans during this pandemic — as an employer, the executive branch is implementing the deferral to give our employees relief as quickly as possible, in line with the presidential memo,” said OMB spokesperson Rachel Semmel in an email.
That’s drawing protests from unions representing workers and questions from Democrats in Congress. On Wednesday, 17 members of the tax-writing Ways and Means Committee released a letter demanding to know how the administration intends to implement the plan.
“We are especially alarmed that after many businesses and groups, including the U.S. Chamber of Commerce, have expressed concern about the ramifications of deferral for employers and employees, federal public servants are being used as guinea pigs,” they wrote.
Businesses know some of their workers may want the increased paychecks that would come under the president’s order, and employers are considering offering them bonuses instead, Delgado said.
“Given the work that needs to be involved here, and the open questions employers need to think about, would a nominal bonus make up for that? And be a greater value to employees and the employers themselves?” he said.
“That’s certainly part of the consideration.”