The White House has pitched its payroll tax holiday as a boon to American workers that would fatten their paychecks and provide a jolt to the economy. But for companies large and small, the presidential intervention poses difficult legal and logistical questions that only add to the uncertainty that executives and workers are contending with during the pandemic.
Since Mr. Trump, in an order he signed on Saturday, is only suspending the tax, not cutting it, the money that companies would cease to withhold from their employees’ earnings would have to be paid next year, barring legislative action. For companies, this would require some complex accounting maneuvering. For employees, it could mean an unwanted tax bill in 2021, making the break more of a headache.
“This is not a holiday, because there’s a bill at the other end of it,” said Isaac Boltansky, an analyst with the research firm Compass Point.
The Treasury Department is expected to release guidance about how the payroll tax suspension will work. Thus far, businesses have been cool to the idea.
“I would rather just keep paying the payroll tax as it is now and deducting from the employees,” said Arnold Kamler, the chief executive of the bicycle company Kent International. “If it does go into effect, we’ll be very upfront with the workers and tell them: ‘Don’t spend it. Just put it away.’”
The U.S. Chamber of Commerce said in a terse statement on Saturday that Mr. Trump’s executive actions, though “well intentioned,” were “no substitute for congressional action.”
The National Retail Federation has told members to be ready for additional guidance about the policy, said David French, the group’s senior vice president of government relations. “Clearly there are a lot of unresolved issues with it,” Mr. French said on Monday.
The federal government imposes a 15.3 percent payroll tax on wages, which is split evenly between employees and employers. The tax supports Social Security and Medicare. If every business in the United States deferred the Social Security payroll taxes that they withhold for their workers to the end of the year, up to $40 billion a month would be added to the paychecks of Americans, JPMorgan Chase said in a research note on Monday.
But it is far from certain that many companies or workers will take the White House up on this offer, which experts said would be logistically difficult for the Treasury Department to force on them.
“Since employees must still pay those taxes next year, this order is really an offer of a zero-interest loan rather than an actual reduction in tax liability,” said Michael Feroli, economist at J.P. Morgan. “It remains quite unclear whether employers will actually change withholding schedules, particularly if it could lead to financial uncertainties in 2021.”
Because questions about the constitutionality of the policy persist, businesses are likely to hold off any decisions at least until the government provides additional guidance. On Monday, several large corporations declined to say what they would do, because they wanted the Trump administration to provide more details first.
“We’re awaiting guidance from the U.S. Treasury Department on the payroll tax deferral, and we’ll make decisions on implementation once that’s been provided,” said Randy Hargrove, a spokesman for Walmart, the country’s largest private employer, with 1.5 million workers.
One option some employers might consider is to withhold the tax and repay workers later if it is eventually forgiven. But that would defeat the purpose of stimulating the economy now, when it could use the help.
If businesses are reluctant to reduce withholding because they may be liable to pay the tax later, they “might escrow the withheld amounts rather than pay the Treasury, and assure their employees that if the payroll tax liability is eventually forgiven by an act of Congress, the business would cut the appropriate check to their employees,” said Itai Grinberg, an international tax policy professor at Georgetown University Law Center.
Payroll experts said many businesses would be hesitant to do anything until they had assurances from Congress that they and their employees wouldn’t have to make good on the deferred taxes next year.
“It’s a little bit of a risk that Congress may not act, and if you’re deferring a significant amount of taxes the reality is, a few months later, you’re going to have to come up with that cash and pay those taxes,” said Pete Isberg, vice president of government relations for ADP, a payroll specialist that serves more than 800,000 businesses.
The rollout itself may be expensive and time consuming for businesses. The payroll tax rate does not usually change in the middle of the year, Mr. Isberg said, and the shift would require businesses to reprogram computer systems that can be balky.
“Things of this magnitude normally take six months or so for orderly programming,” Mr. Isberg said. “So there will be some employers that just never get this done just from a technical perspective if they have systems that are old or difficult to maintain.”
In addition, by focusing on people who are employed, the measure fails to address the needs of the roughly 16 million Americans without jobs, some of whom are on the verge of losing their homes and cars.
“I don’t think it helps the economy,” Mr. Boltansky said. “I think that it’s a headline benefit for the Trump administration.”
Some groups, like AARP, contend that Mr. Trump’s order could scare older Americans who rely on Social Security and Medicare into thinking that lawmakers will reduce or alter their benefits to make up for the forgone tax revenue. That, in turn, could affect how those people spend and save money now.
“Social Security is more crucial than ever as Americans face the one-two punch of the coronavirus’s health and economic consequences,” AARP said in a statement on Saturday. “But this approach exacerbates people’s already-heightened fears and concerns about their financial and retirement security.”