AARP Opposes Payroll Tax Deferrals, Cites Risk to Social Security Funding

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.).