Lawmakers Revive Push to Make Feds’ Payroll Tax Deferral Optional

Lawmakers on Capitol Hill have renewed their efforts to convince the Trump administration to allow federal employees to opt out of the controversial decision to defer payroll taxes across the executive and military service branches of the government.

In August, President Trump signed a memorandum allowing employers to defer the collection of Social Security taxes between September and December of this year. Although most private sector businesses elected not to take part in the initiative, the White House instructed federal payroll providers to implement the deferral for all eligible federal employees and members of the military.

The move sparked an outcry from legislators, federal employee unions and other employee groups, who have decried the deferral’s implementation as confusing and chaotic. Federal agencies have not outlined how they would recoup the deferred taxes in early 2021, and the National Treasury Employees Union has accused the administration of “misleading” employees about who is eligible. Although officials initially said the deferrals would only apply to those whose gross income is less than $4,000 per pay period, in practice payroll processors deferred the taxes of employees whose wages were less than $4,000 after a number of pre-tax deductions like health care premiums were removed.

In a letter to Treasury Secretary Steve Mnuchin last week, a bipartisan group of 43 House lawmakers led by Rep. Don Beyer, D-Va., urged the administration to allow feds to opt out of the deferral plan.

“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,” the lawmakers wrote. “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 highlighted Mnuchin’s comments at a Senate hearing last month suggesting that including an opt-out provision for feds would be “reasonable.” Mnuchin at the time said he would bring the proposal to the White House, but there have been no developments on the issue since then.

“Payroll tax deferrals are already being reflected in government-issued paychecks for the final pay period of September,” the lawmakers wrote. “We therefore urge you to indicate your definite intention to grant all affected members of the United States military and employees of the federal government the choice to opt out of the policy as soon as possible. We further urge you to implement such changes consistently, without threat of adverse consequences, and with clear communication.”

Sen. Chris Van Hollen, D-Md., who asked Mnuchin about the opt-out proposal last month, also sent him and Office of Management and Budget Director Russell Vought a letter last week, asking about the status of his inquiry.

“Since federal agencies are currently altering paychecks on a mandatory basis to implement the deferral—regardless of whether individuals want to participate—I urge you to expedite the consideration of our request to make this voluntary as soon as possible,” Van Hollen wrote. “[A previous] letter also asked for basic information about how the deferral will be implemented, including whether and how it will be collected from employees who separate from their job before it is recouped. Federal employees, service members and agencies need answers to these questions as soon as possible.”