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
Smoke and mirrors by Trump. The tax holiday was originally a good idea that would forgive all taxes, but soon that became something totally difference as Trump didn’t choose the small government path to deal with the pandemic. Trillions later, tax increases are going to come from Trump’s sins of the past. That’s inevitable.
Trump’s true deception is with the 2017 Trump tax cuts that are getting ready to expire. Hidden in the legislation are small, gradual tax increases. Trump was warning our taxes would go up under Biden, and he is right. That’s because of the expiration date that is coming with the Trump tax cuts and the hidden tax increases.
None-the-less, Sean Hannity will have a field day when the expiration date hits and the increases come blaming it on the wrong people.
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.
Hey Mish, how about doing a piece on how Biden wants to eliminate SFR zoning and put low income minority apartments in every single suburban neighborhood in America. It is not bad enough what they have done to the cities, now they are coming for your neighborhood. I must have missed the paragraph in the Constitution that gives the Federal Government the power to force us to live in neighborhoods of their design. They will not be happy until the US is a third world dictatorship.
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.
Meanwhile, people are dying in the streets because the Democrats have failed to maintain peace and the rule of law in the places they run. What do you think will matter more to the voters, arguments over the legality of a tax cut, or the fact that Democrats are supporting America’s cities turning into Beirut?
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!
It can very much be a lie, if Trump is fully aware he is not in any position to ever make it permanent. Such that he knows full and well that “later” will never arrive.
Of course, Trump being Trump, “fully aware” pretty quickly does run afoul of Hanlon, so you may well be right……
Trump also said prior to election ‘ if elected he is going to make deficit/DEBT disappear once he gets elected! Go back read his tweets!
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.
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.
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?
But I thought that tRump is the King and can do whatever he pleases in his kingdom.
well he did treat the white house as his castle during the convention. he seems to think its his residence and doesn’t appreciate he’s a guest of the american people
….as does he…
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
Sadly, even if it just looks like paychecks increased because of Trump…
it is another King Chaos “win”.
Matters not if it is total bullshit in the long run…
to this “stable genius” that claims to be the “chosen one”…
or to his blind followers.
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.
Cash under the table, invariably means only paying those doing valuable work. Inevitably cutting out useless leeches. Which is why totalitarian juntas serving leeches and leeches only, can be counted on to always and every demonize it.
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.
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?
Of course, and they will lodge complaints with the department of labor…. because that is the usual means of redress…employers are just getting screwed here, from what I see.
“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?
One of them has gotten exceedingly good at it recently.
More accurately: Both have always been good at it, and at nothing whatsoever aside from it.
It was just easier to cover up, back when there was still enough not-yet-stolen resources around in the US, that the theft didn’t have to be so obvious.
As America has gotten poorer, this is no longer the case. Such that, by now; the theft required to keep the class of idle idiots in splendor, by necessity gets closer and closer to people’s firstborn. Which means it gets harder and harder for even the most ardent and pliant members of the indoctriati to overlook.
“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.”
That is why the withholding won’t be reduced in the first place.
At a minimum, this certainly causes confusion for payroll depts. You may be right that withholding wont be reduced for the most part but that remains to be seen.
I also suspect there will be some that fully expect that they will not be paying the payroll tax.
Politically how does Trump react if there is widespread rejection of his payroll tax order? Whats his next rant and holler and aimed at who?
There is no doubt that it was a “seat of the pants” order to buy votes with no thought as to the specifics or long term implications. I am also wondering if there is truly intent or a wish to eliminate the Social Security and Medicare programs? I mean he cant be that stupid can he, to put an order to temporarily eliminate payroll taxes for Social Security and then propose to make them permanent without understanding that this means the end of Social Security?
In any event, the future of Social Security and Medicare in their current forms will be under scrutiny as they will be insolvent this decade.
The options:
-Substantial Increase in funding, taxation
-Substantial Decrease in Benefits
-Combination of increased taxation and reduction of benefits.
-End of programs.
Where does America with a federal debt of $27 trillion and climbing proceed?
” in the first few months of 2021″
So, Fat Donnie from Queens does not give a crap as he will unemployed on January 20th.