En español | On behalf of all older Americans, AARP sent a letter on Sept. 22 to congressional leaders to support a joint resolution disapproving of the new rule allowing temporary suspension of the collection of payroll taxes that largely fund Social Security.
A presidential order issued on Aug. 8 allows employers of workers who make $4,000 biweekly or less to temporarily suspend their 6.2 percent portion of the payroll tax from Sept. 1 through Dec. 31. Few employers are participating, and the taxes would have to be repaid in early 2021, but President Donald Trump has stated publicly that he would, if reelected, work to have repayment of the deferred payroll taxes forgiven.
AARP has long opposed any suspension or deferral of the payroll tax, which would not help unemployed workers and could, potentially, undermine Social Security’s funding.
“As AARP raised in letters to Congress back in March and President Trump and Treasury Secretary Mnuchin in August, we believe suspending, reducing or eliminating contributions to Social Security will interfere with the program’s long-term funding stream,” Nancy A. LeaMond, AARP’s executive vice president and chief advocacy and engagement officer, wrote in the Sept. 22 letter supporting a joint resolution of congressional disapproval of the payroll tax deferral. “These concerns are consistent with those we addressed to President Obama in 2012, that payroll tax holidays ‘undermine confidence in Social Security and put at risk the program’s dedicated funding stream and the hard-earned benefits of millions of Americans and their families.’ ”
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Temporary assistance for some
Workers would have to repay the Social Security payroll taxes eventually, either in one lump sum at the end of 2020 or by paying extra payroll taxes during the first four months of 2021. The 1.45 percent payroll tax that goes toward Medicare would not be deferred.
Workers with $50,000 in annual income that’s subject to Social Security payroll tax might see an extra $119.23 in their biweekly paychecks the next four months, according to calculations from the U.S. Chamber of Commerce. Those workers would owe $1,073.08 (based on nine pay periods) to Uncle Sam on Dec. 31, which they could pay in full. They could also add $119.23 to their biweekly paychecks during the first four months of 2021 to repay their deferred payroll taxes.
The Treasury Department is not charging interest on the deferred taxes, but penalties and interest would start to accrue on taxes not repaid by April 30, 2021.
Employers would have to agree to participate in the program for their employees to defer the tax. To date, most private employers have opted out of offering the deferral. In an Aug. 18 letter to House Speaker Nancy Pelosi (D-Calif.), Senate Majority Leader Mitch McConnell (R-Ky.) and Treasury Secretary Mnuchin, the U.S. Chamber of Commerce opposed the executive order. “Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year,” the Chamber of Commerce wrote.
The letter said that many of its members, including the National Association of Realtors, the National Association of Manufacturers and the National Retail Federation, would not implement the payroll-tax suspension. Neither the House of Representatives nor the Senate is participating in the program, although all qualifying government employees will have to take the deferral.
Payroll tax at risk?
President Trump has promised to “terminate,” or forgive, the payroll taxes deferred from September through December. He has suggested that the lost funds could be made up by general revenue transfers from the federal government.
The president also said in an Aug. 12 press briefing that if he is reelected in November, “we are going to be terminating the payroll tax after the beginning of the new year.” On Aug. 13, AARP CEO Jo Ann Jenkins sent the president a letter asking for further explanations of the administration’s remarks about eliminating the dedicated funding for Social Security, which provided retirement benefits to 69.1 million people in 2019.
“The foundation of Social Security, for 85 years, is that workers and employers pay into the program and workers earn their benefits,” Jenkins says. “AARP believes permanent elimination of payroll contributions would put Social Security benefits at risk for both current and future retirees.”
A joint resolution of disapproval of the executive order was introduced in the House and Senate on Sept. 9. AARP sent its endorsement of the resolution to House Ways and Means Social Security Subcommittee Chairman John Larson (D-Conn.) and to House Ways and Means Committee Chairman Richard Neal (D-Mass.).