Federal Employees Will Have Payroll Taxes Deferred in Next Paychecks, Processor Says

he government will begin deferring withholding payroll taxes for federal employees to fulfill a memorandum President Trump issued earlier this month, according to a notice from one of its payroll processors.

Trump issued his presidential memorandum to defer the taxes from Sept. 1 through the end of the year, citing the need to put more money in the pockets of American workers as the novel coronavirus pandemic continues to wreak havoc on the U.S. economy. It has remained unclear what impact the memo would have, as business associations across the country have repeatedly made clear they would not implement it.

Based on a notice from the Agriculture Department’s National Finance Center, which processes payments for 600,000 employees across 160 agencies, it appears the policy will take effect with the federal workforce. Normally, employers are required to withhold the taxes their employees owe for Social Security and Medicare from their paycheck. Trump’s directive set out to defer those withholdings, meaning employees would temporarily see bigger checks. The memo, and NFC’s notice, applies to anyone making less than $104,000 annually, or $4,000 per pay period. It tasked the Treasury Department with issuing guidance to implement the order and to find a way to eliminate the obligations for the deferred taxes, neither of which have occurred.

“The executive order refers to the fact that this is a deferral of the deductions, and Treasury should look to have legislation put in place so that employees do not have to pay back these deferred amounts,” the center said. “NFC will provide additional information as it becomes available.”

Rep. Don Beyer, D-Va., warned that absent additional intervention, federal workers would now face an unexpected tax bill when filing next year.

“The Trump administration’s plan to initiate payroll tax deferrals for civil servants treats the federal workforce as a guinea pig for a bad policy that businesses already rejected as ‘unworkable,’” Beyer said, quoting a coalition of business groups led by the U.S. Chamber of Commerce. “This payroll tax deferral does not really put money in workers’ pockets, it simply sets up the members of the federal workforce who can least afford it for a big tax bill that many will not expect.”

Beyer called Trump’s order a “gimmick,” adding the administration’s legal authority was “dubious.” He pledged to press the administration for more information.

Trump signed the order after negotiations between the White House and lawmakers for a new coronavirus relief bill stalled. The president had pushed for a pause on payroll taxes, but the proposal was not popular with either party.

NFC said it would begin deferring the taxes in pay period 17, with paychecks set to go out Sept. 8.