Rules from the Treasury Department and the IRS are needed to clarify the payroll tax deferral executive order that Trump issued Saturday, the American Institute of Certified Professional Accountants said in its letter to Chuck Rettig, the internal revenue commissioner, and David Kautter, Treasury's assistant secretary for tax policy. The letter was sent Wednesday.
Trump's order directed Treasury Secretary Steven Mnuchin to defer withholding, deposit and payment of employee payroll taxes for some workers from Sept. 1 through the end of the year. Trump issued the order in response to the stalemate in negotiations in Congress over another round of stimulus legislation to address the novel coronavirus pandemic.
The rules should specify that deferral of payroll taxes is voluntary for employees and explain other requirements related to Trump's order to better inform workers and employers how the tax relief will work, the AICPA said.
"By requiring employees to make an affirmative election, the employer is prevented from withholding and then failing to deposit and pay the tax (to the extent that an employee elects to defer)," the AICPA said. "In addition, it protects the employer by placing the decision to elect to defer with the party primarily liable for payment of the tax."
Trump's memo said the payroll tax deferral will be available for any employee whose applicable pretax wages or compensation payable during any biweekly pay period is generally less than $4,000, or the equivalent amount for other pay periods. Under those terms, workers who earn less than $104,000 annually will be eligible for the payroll tax suspension.
Amounts deferred will not come with any penalties, interest, additional amount or addition to the tax, the memo said. The memo also directs Mnuchin to explore ways, including legislation, to eliminate the obligation to pay the deferred taxes.
Internal Revenue Code Section 7508A
grants the Internal Revenue Service broad powers, including the ability to extend tax deadlines, when the president declares a federal disaster, as Trump did for the pandemic.The AICPA recommended that the IRS and Treasury develop a "model notice" for employers to distribute to their workers that details the requirements to defer payroll tax obligations and deadlines to make an election.
The group also recommended that guidance be issued detailing whether the increase in earnings as a result of deferring payroll taxes can be used toward other obligations such as 401(k) plan contributions.
In a separate letter sent Wednesday to Mnuchin, the U.S. Chamber of Commerce warned that Trump's executive order is plagued by uncertainty and that it "creates a substantial tax liability for employees at the end of the deferral period."
There are still open questions about whether the employee or employer would be liable to repay the deferred taxes, and when those payments would be due, the chamber said. Guidance on how workers with multiple employers, or those who are employed for a short time, will also be needed to determine how the tax deferral will apply, according to the chamber.
Issuing guidance that addresses some of these questions will help businesses navigate the executive order, the chamber said.
Alice Jacobsohn of the American Payroll Association said in a statement Tuesday that postponing the payment of employee payroll taxes won't provide relief to workers, but rather put off the burden until a later date "at a significant expense to employers."
The memo follows passage of the Coronavirus Aid, Relief and Economic Security Act
, which Trump signed into law in March, allowing employers to defer deposit and payment of their share of Social Security taxes. Half of the eligible deferred amount of the employer's share of Social Security taxes must be deposited by Dec. 31, 2021, with the remaining amount deposited by Dec. 31, 2022.Treasury and the IRS didn't immediately respond to requests for comment.
--Additional reporting by David van den Berg. Editing by Neil Cohen.
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