Despite questions, President Trump issued executive orders creating temporary payroll tax cuts

On August 6, 2020, the Senate adjourned without passing the stimulus package. Senate Leader Mitch McConnell (R-KY) was not involved in the talks, directing Senate Minority Leader Chuck Schumer (D-NY) and House Speaker Nancy Pelosi (D-CA) to work directly with Treasury Secretary Steve Menuchin and the White House Left for. Chief of Staff Mark Meadows. As of Friday night, the parties reported that they had not reached an agreement.

Today, clearly frustrated by Congress’ inaction, President Trump signed executive orders that would change the current plan.

from them? A payroll tax referral. Specifically, the order states:

To that end, today I am directing the Secretary of the Treasury to use his authority to require the elimination of certain payroll tax obligations with respect to American workers. This minor, targeted action will put money directly into the pockets of American workers and create additional incentives for work and employment, precisely when the money is most needed.

You can read the entire order here.

Earlier, the tax policy gurus – from right and left – were weighed in, with many doubting whether President Trump had the right to act on payroll tax collections. Most tax experts believe that only Congress has the power to stop the collection of taxes.

The right to take action can be found in the tax code, especially on section which starts at 50A: In case of a taxpayer determined by the Secretary to be affected by a union declared disaster (as defined) Section 165 (i) (5) (A)) Or a terrorist or military action (defined in section 692 (c) (2)), the Secretary may specify a period of up to 1 year in the determination, in relation to any tax, under internal revenue laws. The liability of such taxpayer-

This usually limits relief to specific geographic areas. However, on March 13, 2020, the President of the United States in response to the ongoing Coronavirus Disease 2019 (COVID-19) pandemic (emergency declaration), Robert T. Issued an emergency declaration under the Stafford Disaster Relief and Emergency Assistance Act. In other words, everywhere in the United States currently qualifies as a disaster.

The same Tax Code section was cited when the tax season filing deadline was postponed from 15 April to 15 July.

But here is the concern of some tax policy experts: the President may have powers putting off Collection of payroll tax under the Internal Revenue Code, but not the power to waive those taxes. That right is given only to Congress. The Executive Order states as much: The Secretary of the Treasury will explore avenues, including legislation, to eliminate the obligation to pay deferred taxes for the implementation of this memorandum.

To be clear, the President is asking the Treasury whether those payroll taxes can be waived. For now, however, the executive order only allows for deferrals. This means – without further action – that taxes have to be paid. Effective for the period September 1, 2020 until December 31, 2020.

Some tax experts also questioned earlier this week whether the president had the authority to impose caps or limits on deferred. But this is exactly what happened. The executive order states that the relief is given to any employee, who, as applicable, the amount of wages or compensation payable during any bi-weekly pay period, as applicable, is generally less than $ 4,000 , Which is calculated on a pre-tax basis, or an equivalent amount related to other pay periods. “It usually works to ban those earning more than $ 100,000 a year. Assuming a complete distortion, it means that the average worker, for a period of just under $ 1,000, or about $ 80 / week Will be able to pay for

Everyone else is still responsible for collecting, withdrawing and withdrawing taxes. How this would apply to workers with more than one job (or with side gigs) is not yet clear. The executive order directed the Treasury to issue guidance on the matter.

Another possible problem? Those payroll tax funds are usually paid into Social Security and Medicare trust funds (which is why we call them “trust fund taxes”). Historically, Congress has appropriated general fund revenue, cutting payroll taxes to not disrupt Social Security and Medicare trust funds. This is not happening here, though remember that for now, it is just a deferral. Generally, a deferral bus can be slid down the road. But President Trump may be more than an earlier deferral today, hinting that, “If I am victorious on November 3, I plan to forgive these taxes and make a permanent cut in the payroll tax.” Been … I’m going to make them all. Permanent. “

What this means for social security and Medicare in the future is unclear, and in 2015 President Trump seems to be in difficulty with assurances that “I’m not a cutter. I’m probably The only Republican who does not want to cut Social Security. “

He followed it in 2015 tweeting: I was the first and only prospective GOP candidate to state that there would be no deduction for Social Security, Medicare and Medicaid. Huckabee copied me.

In 2017, Reins Prebus, stated explicitly on CBS
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“Face the Nation:” I don’t think President-Elect Trump wants to mediate with Medicare or Social Security. He made a promise during the campaign that he wanted to do something he did not want to do.

However, payroll taxes fund social security and medical programs. It is not clear where the money will come from if the payroll tax defaults are made into permanent cuts. You can read more about payroll tax cuts here.

And further complicating the issue? Under the CARES Act, employers may already defer the deposit and payment of the employer’s share of Social Security taxes. The deferral applies to the deposit and payment of the employer’s share of the Social Security tax that would otherwise be required to be made during the period beginning on March 27, 2020, and ending December 31, 2020 until December 31, 2020. Will be eliminated. And remaining on 31 December 2022. This relief also applies to self-employed persons.

I know … I know … My tax colleagues are already groaning about what those payroll tax forms might look like.

There is a lot to unpack here, so stay tuned: more is sure to come.

The last payroll tax cut for American workers was pushed by the Obama administration in 2011, despite concerns that the cuts would increase the federal deficit. The theory was then – as now – that profit would offset any costs. After the first round, Congress cut the temporary payroll tax in 2012.

In response to the executive order, Sen. Ron Wyden (D-OR) Tweeted: The plan is a classic Trump con: play-acting in leadership, while robbing families of the support they need. This “plan” fails to restore supercharged unemployment, and already throws state programs into chaos, making it harder to get benefits out the door.

For more on payroll taxes – and whether payroll tax cuts have traditionally been seen – see this previous article. I will keep you updated as more information becomes available.