Trump's payroll tax deferral order has now taken effect . . . and a lot of employers aren't using it

Candidly, I think I will be one of the employers that doesn’t do it.

The payroll tax deferral is not an exemption from paying the taxes. You’ll still have to pay them, but if you take advantage of the deferral, you can wait until next year. I suppose for some companies, who are short on cash because COVID has caused them to lose business, this might make a small difference.

Ours is a small company. No one here is really interested in what would amount to a short-term loan from the government that will have to be paid back toward the start of 2021. It sounds like a lot of other employers feel the same:

United Parcel Service Inc. will continue to withhold payroll taxes and send them to the federal government, the company said Monday. Other large private employers, including Walmart Inc., Target Corp. and Starbucks Corp., didn’t respond to requests for comment.

“Given the numerous implementation challenges, remaining outstanding questions, and the extremely short implementation period, employers are likely to continue withholding and remitting payroll taxes to the Treasury,” said Caroline Harris, chief tax policy counsel at the U.S. Chamber of Commerce. “In order to achieve relief that is workable for both employers and provides relief to American workers, we urge Congress and the Administration to come together and continue work on legislation.”

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There is some speculation that Congress will come back later and forgive the deferred taxes. But there’s no guarantee of that, so both employers and employees have to plan on the need to repay the deferral. That creates some complications for employers. In a situation where an employee leaves the company before the deferral ends, IRS guidance suggests the employer could be on the hook for the employee’s share of the deferred taxes.

And even administering the deferral is up to the companies to deal with. Many of them use payroll companies, like ADP, which has adjusted some of its tables to accommodate the companies who want to do the deferral. Many smaller companies like mine run payroll via Quickbooks, which sent out an e-mail the other day saying it’s trying to figure out the implications of the deferral.

Democrats are shrieking that the payroll tax deferral is going to bankrupt Social Security. That’s hilarious. Congress has been raiding Social Security for decades, and has refused simple reforms that would put it on a more stable fiscal footing. A short-term deferral of a few payroll taxes won’t do anything to Social Security compared to what Congress has been doing to it for longer than anyone can remember.

Trump was trying to do something within his power to lighten the load on the business community and on employers. But the fact that it’s only a deferral means it will come back next year in the form of an even more difficult payroll tax burden. No company that can handle the current one will want to deal with a harder one next year. And if you can’t handle the current one, why would you set yourself up for something coming right behind it that will be even more difficult?

That’s why I suspect a lot more companies will decline the deferral. What companies really need is for their customers to come back, which can only really happen when governors complete the reopening process and stop threatening to shut everything down again if cases rise a little. A tax deferral is a very temporary band-aid. Business is what they need, and lots of it.