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Democrat bill would make payroll tax deferral optional for federal workers, military

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Sen. Chris Van Hollen, D-Maryland, and 16 other Senate Democrats introduced legislation Friday to make President Trump’s payroll tax deferral optional for federal employees and military service members.

Trump signed a memorandum August to defer the 6.2 percent employee’s share of Social Security taxes from Sept. 1, 2020 until Dec. 31, 2020, but the taxes would need to be repaid by April 30 of next year. The payroll tax deferral only applies to employees with biweekly pre-tax income of less than $4,000, with the goal of stimulating the economy in the midst of the coronavirus pandemic. Trump has said he expects Congress will pass legislation forgiving those taxes, but it’s unclear Congress will do that next year. It will probably depend on the outcome of the November election and who will be in control of Congress and the White House.

Amid the uncertainty, relatively few companies and business employees have reportedly opted to do the payroll tax deferral given the need to repay the taxes next year by the end of April. Van Hollen’s bill is called the Protecting Employees from Surprise Taxes Act.

Sen. Chris Van Hollen, D-Maryland

Last month Democrats on the House Ways and Means Committee introduced legislation to stop the deferral (see story). However, the administration is still requiring federal employees and the military to accept the payroll tax deferrals, although Treasury Secretary Steven Mnuchin told Van Hollen at a congressional hearing last month that he would look into giving them the option of not doing the deferral, saying he would follow up with the federal Office of Management and Budget. “I think that's a reasonable issue, if people don't want to participate. But let me follow up with them.”

However, Van Hollen wants more certainty and introduced legislation Friday with a group of other Senate Democrats.

“President Trump is using federal employees and our troops as pawns in his payroll tax scheme, and it’s unacceptable,” Van Hollen said in a statement Friday. “During this time of heightened uncertainty, our public servants deserve the ability to choose what makes most sense for them and for their pocketbooks. That’s why the president’s payroll tax deferral must be made optional. Since this move has been described as ‘reasonable’ by President Trump’s own Treasury Secretary, I urge the Congress to act quickly on this commonsense measure.”

Van Hollen noted that he has repeatedly pressed Mnuchin and OMB director Russell Vought on the issue. In a letter last Friday, he followed up with Mnuchin and Vought on Mnuchin’s remarks. He also sent a letter signed by over 20 other senators to both Mnuchin and Vought in early September.

The legislation is supported by a number of organizations, including the American Federation of Government Employees, the National Treasury Employees Union, the National Association of Government Employees, the National Education Association, the American Federation of State, County and Municipal Employees, Americans for Tax Fairness, and National Active and Retired Federal Employees Association.

“The President’s payroll tax deferral scheme is nothing more than a scam on hardworking federal employees — making their paychecks look bigger until the end the of the year when they’ll be hit with a surprise increase in their payroll taxes right after the holidays,” said Everett Kelley, national president of the American Federation of Government Employees, in a statement. “We wholeheartedly support Senator Van Hollen’s bill to protect federal employees from this unwelcome surprise by requiring their written consent before their payroll taxes can be deferred.”

The union that represents IRS employees agreed. “This payroll tax deferral plan simply amounts to a temporary loan program and federal employees deserve to choose whether they want to participate, which is why we strongly endorse Sen. Van Hollen’s legislation,” said Tony Reardon, president of the National Treasury Employees Union, in a statement. “The Protecting Employees from Surprise Taxes Act would allow federal employees to opt out of this gimmick and protect themselves from the burdens of higher taxes and smaller paychecks starting in January. Federal employees who want to participate in the deferral would be able to continue doing so, which is how the federal government should have structured the program in the first place.”

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Payroll taxes Finance, investment and tax-related legislation Donald Trump Trump tax plan Tax breaks