The White House is considering giving employees who defer their share of payroll taxes years to pay them back if Congress doesn’t forgive the tax debt, according to the president’s top economic adviser.
“The president’s looking for all kinds of ways to make sure that that is forgiven,” National Economic Council Director Larry Kudlow told White House reporters August 19.
One option the Trump administration is looking at isn’t forgiveness per se, but rather stretching the repayment of employees’ deferred payroll taxes out over many years so that “essentially it will be forgiven,” Kudlow said.
“So the payment won’t be immediate and no one will be burdened . . . if you stretch it out five years or eight years,” he explained.
Kudlow’s comments come amid a growing mountain of questions and concerns from policy analysts, business groups, and tax practitioners about how President Trump’s August 8 executive memo directing Treasury to establish a four-month deferral of the employee share of payroll taxes will be implemented. For now, Congress has shown little inclination to forgive the deferred taxes.
Observers have expressed concern that if employee taxes are merely deferred, employees who opt to defer will be left with a large tax bill in 2021 on top of their normal tax obligations. The American Institute of CPAs recently suggested allowing employees to repay their deferred taxes when they file their federal income tax return in 2021.
Andy Grewal of the University of Iowa College of Law questioned whether Treasury would be able to unilaterally stretch out the repayment period as Kudlow suggested.
“I’m not aware of any carte blanche executive authority to forgive employees’ payroll tax liabilities or to spread payments out,” Grewal told Tax Notes. Deferred payment plans are typically taxpayer-specific, like those under section 6159, and interest is usually charged, which taxpayers may find “unappealing,” he added.
And although the payroll tax memo leans on the disaster authority to extend tax payment and return filing deadlines under section 7508A, that authority has a one-year limit, Grewal said. Congress, rather than Treasury, sets payment deadlines, so “if Treasury simply rewrote those deadlines, I’d be concerned about the validity of its action,” he said.
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A group of top Senate Democrats, apparently concerned Trump may want to do away with the payroll tax altogether, want to know what effect that would have on Social Security Trust Fund coffers.
Senate Minority Leader Charles E. Schumer, Senate Finance Committee ranking member Ron Wyden, D-Ore., Senate Budget Committee ranking member Bernie Sanders, I-Vt., and Sen. Chris Van Hollen, D-Md., sent a letter to the Social Security Administration August 19 seeking analysis of “hypothetical legislation” setting payroll tax rates at zero and how quickly that would deplete the Social Security Old Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund.
“While we would not be supportive of this hypothetical legislation, we would like to be aware of its potential implications,” they wrote.
Earlier this month, Trump made several comments that seemed to suggest he would like to eliminate payroll taxes altogether. However, his press secretary later clarified he was only talking about eliminating tax obligations for deferred payroll taxes.
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