Why California state workers won’t get this tax break offered by President Trump
California state workers will not get the payroll tax deferral being offered by President Donald Trump, the state’s Human Resources Department said Thursday.
Trump announced last month employers could stop taking the 6.2% tax out of paychecks of people earning $4,000 or less per bi-weekly pay period starting September 1 through the end of the year.
The Trump administration touted the break, which would amount to a maximum of $248 every two weeks, as a move designed to boost consumer spending power during tough economic times.
But the taxes would be deferred, not eliminated, and people would have to repay them early next year. Many private employers also are declining to suspend the payroll tax deduction.
That was a big factor in California’s decision not to defer taxes to its approximately 230,000 employees.
“After evaluation and consideration of the IRS guidance, the administration is concerned that while the employer withholding obligation would be deferred in 2020, employees would experience a double withholding in 2021 to recover the taxes due,” the state’s Human Resources Department said in an email to employees.
And if someone leaves their state job before the deferred tax was collected, “the state may be required to pay the tax from state funds,” the communication said.
“For these reasons, the administration has determined the program will not be implemented for State of California employees,” it concluded.
The Internal Revenue Service issued guidelines last week that permit employers to stop deducting the 6.2% tax Sept. 1 through the end of the year. Employees stop paying the tax, which funds Social Security, once their income reaches $137,700 this year, though people making more continue to pay a Medicare tax.
The payroll tax plan has provoked controversy. The U.S. Chamber of Commerce and more than 30 trade associations told Congress in a letter that the deferral “creates a substantial tax liability for employees at the end of the deferral period.
“Without congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.” it said.
The Chamber of Commerce estimated that someone earning $35,000 annually would see a tax increase of $83 per pay period next year to pay for the deferred taxes. Someone earning $75,000 would pay $178 more per bi-weekly pay period.
“Many of our members will likely decline to implement deferral,” the letter said.
Congressional lawmakers have long been wary of cutting the payroll tax, fearing that it would endanger Social Security. They have also noted that unemployed people don’t pay any of the tax and would get no benefit.
“We’re disappointed that instead of putting in the work to solve Americans’ problems, the President instead chose to stay on his luxury golf course to announce unworkable, weak and narrow policy announcements to slash the unemployment benefits that millions desperately need and endanger seniors’ Social Security and Medicare,” said House Speaker Nancy Pelosi and Senate Democratic Leader Chuck Schumer in a statement after Trump announced the payroll tax break last month..
This story was originally published September 3, 2020 at 11:26 AM with the headline "Why California state workers won’t get this tax break offered by President Trump."
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