Workers would get a little more take-home pay under a payroll tax "holiday" being pushed by the Trump administration, but it could also come with a large back-taxes bill next year. And businesses appear reluctant to participate in the plan to defer workers withholdings for Social Security.

The Marana Town Council rejected the idea of participating in the payroll tax deferral program offered by the Trump administration.

After talks with Democrats over a new coronavirus stimulus package broke down in August, President Donald Trump established a voluntary program where the Internal Revenue Service will defer taxes on employee Social Security contributions from Sept. 1 to Dec. 31, 2020 due to the economic impact of COVID-19. Employers choose whether to participate in the program, and the Town of Marana recently joined several municipalities in opting out.

The federal program does not include tax deferrals for employer contributions to Social Security, and the deferral is only available to employees who make less than $4,000 before taxes in a two-week period.

The Trump administration directed the IRS to “explore avenues” for eliminating the obligation to pay back the deferred taxes, but the program only lasts until December 31, 2020. The pay-back period begins January 1, 2021 and ends April 30, 2021, where all participating employees will essentially have to double their tax payments on Social Security. Penalties for non-payment begins on May 1, 2021.

“If for any reason we cannot collect that money, it would be a liability that the town would still have to pay to the IRS,” said Marana Finance Director Yiannis Kalaitzidis. 

They calculated a $371,000 liability if every eligible employee were to participate in the program.

At their Sept. 1 meeting, the Marana Town Council discussed the pros and cons of this program. In addition to being liable for any missing contributions, Kalaitzidis told the council there is uncertainty about temporary or seasonal employees paying back their deferrals, as well as full-time employees who leave their jobs with the town before January 2021.

Kalaitzidis said this program would provide a benefit for employees during the four months of the deferral, but it would become a burden in the following four months when they have to pay it back, essentially doubling their payments. He noted that about 25 Marana employees initially expressed interest in the program, but once they found out that there is no guarantee of forgiveness, each person said they were no longer interested.

“Every municipality out there has opted to not do it,” Kalaitzidis told the council members. “At least until there is better guidance and more clarity from the federal government and some guarantee of forgiveness.”

In mid-August, the U.S. Chamber of Commerce joined more than 30 national industry organizations in opposing the president’s payroll tax program. They wrote in a letter to federal leaders that suspending taxes for that period would be more beneficial than forcing employees to pay the money back later, and that it would be “unfair” to put their employees in a situation where they have to pay a large tax bill next year.

“Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law,” the letter states. “We hope Congress and the Administration come together on a path that supports workers instead of burdening hard working Americans with a large tax bill next year.”

In Marana, some council members expressed similar sentiments.

“This is the dumbest thing I’ve ever heard of,” said council member Dave Bowen.

While others felt that any opportunity for employees to save money, even temporarily, is worth providing to the town’s employees.

“I don’t think it’s that stupid,” said council member Roxanne Ziegler.

With the holiday season approaching, Ziegler said there could be employees with families who could use the temporary relief. She believes Marana should give their employees the option to participate in the program if they want to, despite current employee feedback as detailed by Kalaitzidis.

“I wouldn’t do this, but I think it’s just preposterous that we sit here and think that we know what our employees can do and what they don’t want to do,” Ziegler said. “There might be some employees out there who might need that money.”

The council voted 6 to 1 in favor of rejecting the president’s payroll tax deferral program. Ziegler voted against the measure.

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