Some federal workers might take home a larger paycheck in the coming months, but will end up paying more in taxes a year from now as the result of a White House experiment.
The federal government will apply a payroll tax deferral to the paychecks of about 1.3 million federal employees in an effort to put more money in their pockets amid the pandemic. Of course, deferral is the key word.
Down the road, these workers will have to pay the money back in the form of steeper payroll deductions, probably beginning in January.
Trump vs. The Payroll Tax
In early August, President Trump touted the idea of deferring payroll tax payments, a 6.3% paycheck duty that goes towards funding Social Security. But that plan received criticism from members of both political parties. Now, the deferment plan for a relatively small group of federal workers has some feeling like “guinea pigs” in a tax-cutting experiment.
Following the announcement, unions blasted the government’s decision, fearing that federal workers will not have a choice in whether to take the deferral. As a result, unions leaders warned, some of these workers will receive smaller paychecks in 2021 until the past-due taxes are paid off. That could last until May of next year.
In response to criticism, Trump doubled down by suggesting terminating the tax altogether. But that idea has virtually no support in Congress. That’s because the payroll tax funds Social Security, a program that is very popular among America’s retirees. Few members of Congress, even critics of Social Security, feel comfortable touching the source of that program’s funding, particularly as an election approaches.
Union leaders have overwhelmingly decried the administration’s plan. Everett Kelley, the national president of the American Federation of Government Employees, denounced Trump’s plan as a “scam that leaves workers with a substantial tax bill right after the holiday season.”
“Workers will have to pay double their regular payroll tax rate during the first four months of 2021, and if they cannot do so, they will have to pay interest and penalties on amounts still owed if they’re not paid back by May 1, 2021,” Kelley said.
Meanwhile, Rachel Semmel, a spokeswoman for the Office of Management and Budget, defended Trump’s initiative as a way to put immediate money in workers’ pockets.
“The president put forward this action to give relief to all Americans during this pandemic,” Semmel said in a statement. Additionally, she said that the executive branch as an employer was “implementing the deferral to give our employees relief as quickly as possible.” She did not, however, respond to questions about whether the deferral would be optional.