STWS Advisor Jennifer Meyer Updates Feds about a possible opt-in for Payroll tax deferral
Congress is working to give federal employees the opportunity to opt-out of the payroll tax holiday that took effect last month following President Trump’s executive order. The “Protecting Employees from Surprise Taxes Act of 2020” bill was introduced by Maryland Senator Chris Van Hollen last week. If enacted, the bill would allow employees to opt out of the tax deferral. Currently, President Trump has mandated that all federal agencies implement the tax deferral on employees whose bi- weekly taxable income is $4000 or less.
There is widespread concern that employees who receive the tax deferral, which is scheduled to last through the end of 2020, will be surprised when the deferred taxes are deducted from paychecks beginning in January 2021 and lasting through April 2021. Note that the deferred taxes will be collected in addition to the regular ongoing per pay period FICA taxes, resulting in a lower net take home pay for employees. If employees have not planned properly for the lower 2021 net take home pay, the surprise could have a significant negative impact to this population of workers.
Studies show that few private sector employers are participating in the tax deferral.
The bill was presented following an outcry from both lawmakers and federal employee groups. Many employees were surprised to find that they were subject to the mandatory deferral when payroll processors deferred taxes on those whose income fell below $4,000 per pay after pre-tax deductions like health insurance and flexible spending account contributions were made. The National Treasury Employees Union’s President, Tony Reardon, said in a statement that “Our federal workers deserve better.” (source, Government Matters Sept. 22, 2020)
It appears there could be some support for the motion to allow employees to opt out. Van Hollen’s bill has 15 co-sponsors, all Democrats. However, there are more than 20 senators, including at least one Republican who have written to the administration voicing concerns.
When asked, Secretary of Treasury Steve Mnuchin told Van Hollen that he felt it was reasonable to allow employees to have a choice with regards to participating. He did note however that he would need to follow up with the Office of Management and Budget before any decision could be made.
At Serving Those Who Serve, we continue to follow this story and will update our feds as soon as any additional guidance is provided.
**Written by Jennifer Meyer, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.**
Federal Payroll Tax Opt-In