Lawmakers Make Last Ditch Push for Payroll Tax Deferral Opt-Out

Lawmakers in both parties and both chambers of Congress on Tuesday made a last-ditch effort to persuade the Trump administration to allow federal employees and members of the military to opt out of a controversial plan to defer payroll taxes through the end of this year.

The Defense Finance and Accounting Service on Sunday confirmed that the White House’s plan to defer the payroll taxes of federal workers and military service members would be mandatory, and that it would begin with the pay period ending Saturday. Although Treasury Secretary Steve Mnuchin said last week that the administration plans to push for Congress to pass legislation to allow employees to keep the money, the payroll agency said it plans to recoup the deferred payments in early 2021.

A bipartisan group of 25 senators, led by Sen. Chris Van Hollen, D-Md., urged the administration to allow federal employees and service members to choose whether to have their payroll taxes deferred, especially since it appears private sector employees would have that option.

“While some federal employees may want to defer their payroll tax payments, unions representing federal workers have made clear that many others do not,” the senators wrote in a letter to Mnuchin and Office of Management and Budget Director Russell Vought. “[The IRS’ notice on the initiative] 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.’ ”

A group of 11 Washington, D.C.-area House Democrats went further, encouraging federal agencies to make tax deferrals available if federal workers opt into the program.

“Dozens of industry groups predicted that most private sector employers will likely decline implementing this deferral and continue withholding payroll taxes as required by law,” they wrote. “Other groups have specifically requested guidance clearly establishing that employees must opt in to defer payroll taxes. When Treasury finally issued further guidance on this matter—hastily releasing it late Friday afternoon—it was only two and a half pages long and failed to provide guidance on many administrative uncertainties and headaches, including whether and how employees will be able to opt in or opt out of the president’s unusual plan.”

The House lawmakers also questioned the stated motives of the plan—to help workers—if the workers don’t have a say in the matter.

“The administration has insisted that it is ‘implementing the deferral to give our employees relief as quickly as possible,’” they wrote. “If the policy truly intends to provide federal employees relief, then employees should have a free choice whether to seek this ‘relief.’ We have already heard concerns voiced by numerous constituents who do not want their payroll taxes deferred only to have their paychecks substantially reduced at the end of the deferral period.”

Despite lawmakers’ efforts, with the first paychecks with payroll taxes deferred slated to go out next week, it seems unlikely that feds will be able to opt out of deferring their Social Security contributions.