Trump's Payroll Tax Cut Lie Exposed by the IRS

Mish

An IRS ruling effectively kills Trump's tax holiday.

IRS Says Firms On the Hook

The IRS issued long-awaited Guidance on President Donald Trump’s Payroll Tax Deferral Friday evening.

The ruling allows deferral of taxes but does nothing to eliminate employer liability. 

Key Points

  • Employers and employees share responsibility for a 12.4% levy that funds Social Security and a 2.9% tax to support Medicare.
  • Trump's executive order applies specifically to the Social Security tax and would affect workers whose bi-weekly pay is less than $4,000 on a pretax basis.
  • The three-page notice the IRS issued on Friday postpones the due date for these taxes until April 30, 2021. After that date, penalties, interest and “additions to tax” will begin to accrue.
  • Employers – dubbed the “affected taxpayers” in the guidance – “may make arrangements to otherwise collect the total applicable taxes from the employee,” the IRS said in its guidance on Friday.

Just Say No?

“To me, this says you’re telling the employer not to withhold the money, put themselves on the hook and then make ‘some arrangement’ to get the money back – or trust us that we’ll go and forgive it for you,” said Adam Markowitz, enrolled agent at Howard L Markowitz PA CPA in Leesburg, Florida.

“I had warned my employer clients that this would be a ‘hard no,’” he said.

Compliance Nightmare

“What if the employer hangs onto the taxes in a bank account and the employee leaves? What do we do with the money?” asked Dan Herron, CPA and principal of Elemental Wealth Advisors in San Luis Obispo, California.

“Do we give the money to the employee and tell them to figure it out how to report it on their Form 1040?” he asked. “It’s a compliance nightmare.”

This is what happens when presidents issue seat-of-the-pants executive orders while ignoring the temporary nature of them.

Seat-of-the-Pants Executive Orders

Trump says if elected he will make the changes permanent. 

That's another blatant Trump lie. He has no power or privilege to do so and he knows it too. 

If Trump had that power, he would do it now rather than lie about doing so later.

Devastating Fiscal Cliff

Meanwhile, a Devastating Consumer Financial Cliff is Underway.

Over 27 million people missed 5 weekly checks of $600 each. Here's the math: 27 million * 5 * $600 = $81 billion dollars.  That is money consumers don't have to pay the rent, pay mortgages, or but food.

Endless Bickering

Trump offered $1.3 trillion. Pelosi asked for $3 trillion but would settle for $2 trillion.

Who Gets the Blame? 

Both Republicans and Democrats are making an election gamble with close to 30 million people severely impacted.

My guess is Trump gets more of the blame. The party in power generally takes more of the brunt. 

Trump is so far down in the polls he needs a big gamble to win.

But to be fair, both parties seem willing to ruin lives if it increases their chances of winning.

Mish

Comments (27)
No. 1-14
Roadrunner12
Roadrunner12

"Millions of workers could see smaller paychecks in the first few months of 2021 after the Treasury Department on Friday told employers they would be on the hook for the payroll taxes deferred under President Trump’s recent order.

The new guidance paints a sharply different picture from what White House officials have said for several weeks in response to Trump’s directive, which set in motion a plan to defer payroll taxes starting in September through the end of the year.

Trump has said he hopes to “terminate” the tax, which funds Social Security and Medicare, so workers see a boost to their weekly checks and aren’t required to pay it back later. But absolving Americans of these debts requires an act of Congress, something lawmakers from both parties have been reluctant to do."

Curious-Cat
Curious-Cat

"But to be fair, both parties seem willing to ruin lives if it increases their chances of winning."

So how is today different from all other days?

njbr
njbr

I am really interested in the employer/employee dynamics that will be put into play with this.

Will there be employees that will blame their employer for not getting the cut?

Call_me_Al
Call_me_Al

Deferral, deferral, deferral. This wasn't a 'tax holiday' so it isn't news that someone would have to pay the piper and, since employers are responsible for taking the $ from their workers, one shouldn't be surprised that the IRS would say they are on the hook.

If there were more inquisitive workers in the U.S., perhaps there would be more people asking why this tax(or these taxes, if you prefer) isn't just eliminated straight away. That would give workers a significant boost and, as we've seen, there are plenty of federal reserve notes that can be created to augment the funds that Social Security and Medicare would miss out on.

Dodge Demon
Dodge Demon

Mish, whatever happened to cash under the table? Pretty common for small businesses in the 70s, remember? Hey, an ounce of silver / hour pay would get plenty of people off the dole and back to work for many jobs on that basis.

Sechel
Sechel

i agree this was poorly thought out and executed. employers will of course withhold band for those that don't since workers are still on the hook they'll wisely save the money. so nothing gets accomplished except introducing chaos and confusion

Augustthegreat
Augustthegreat

But I thought that tRump is the King and can do whatever he pleases in his kingdom.

PecuniaNonOlet
PecuniaNonOlet

65 days till election. So the carnival barker failed again then?

Tony Bennett
Tony Bennett

Insanity

Payroll tax collection around $1 trillion / year (and placed in general fund to pay current outlays). It is a close second to income tax as source of funds for fedgov.

If done away ... what other source to replace? Or, is US going straight banana republic and run massive $trillions deficits without collecting any revenue. How is this sound government ... or perpetuate sound money?

gregggg
gregggg

When is he going to declare that twitter is his executive order posting site? Post it and it's the new law. That'd be handy.

Casual_Observer
Casual_Observer

More uncertainty that businesses didnt need. Fundamentally that is the problem with Trump is the unpredictability and uncertainty. The Fed has backstopped the markets but we know businesses have more uncertainty then they can already handle.

FatManCometh
FatManCometh

That's exactly what Trump said... he deferred the SS tax and would later make it permanent. It can't be a lie if "later" hasn't arrived. Mish... please stop the partisan bloviation!

Carl_R
Carl_R

I have no idea how my payroll service is going to handle this. I fear they will not deduct the taxes, and that later on, I will be held responsible for them. My business is down substantially due to economic changes caused by Covid, but I can survive that. I don't need a huge hit from this idiocy on top of that.

plumera
plumera

Ok, some facts. My company about 900 employees, is NOT deferring the fica payroll taxes. By IRS LAW the deferral is optional for private companies (not the military). Check with your employer to see what they decide. I suspect most employers will ignore this stupid Executive Order, because IRS LAW requires the employer not the employee to pay back the taxes. That would be a huge burden upon the employee to have double Fica taxes taken out in 2021 by the employer. And if you leave the employer and they have deferred the taxes, YOU the employee will indeed be liable for them in 2021. Our company has researched this thoroughly.


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