House employees will not have their payroll taxes deferred as allowed under President Donald Trump’s executive actions last month, Chief Administrative Officer Philip G. Kiko informed staff in a “Dear Colleague” letter Friday.
Trump last month gave employers the option starting Sept. 1 to defer collection of employee payroll taxes, which are withheld in paychecks, for individuals who make less than $4,000 on a bi-weekly basis. The tax deferral, authorized through the end of the year, is intended to be a stimulus measure to counter the economic downturn caused by the coronavirus pandemic.
Although many private sector employers have opted not to participate, the Trump administration has told executive agencies to defer payroll taxes for federal employees. Because Congress is not part of the executive branch, House and Senate employees were not affected by that mandate.
The CAO, which oversees payroll for House employees, said it weighed the benefit of the deferral against the challenges of implementing it.
“After reviewing the guidance and considering the unique structure of the House, the Office of the Chief Administrative Officer, with the concurrence of the Committee on House Administration, has determined that implementing the deferral would not be in the best interests of the House or our employees,” Kiko wrote. “As a result, we will not implement the payroll tax deferral.”
Employers have avoided participating in the deferral, in part, because they would have to update their payroll systems to implement it and they would have to start collecting the unpaid taxes come January. That could lead to higher withholding from employee paychecks in the early moths of 2021.
Trump has said he would push for Congress to pass legislation waiving payment of the taxes, using the Treasury’s general fund to backfill any losses from deferral to the Social Security Trust Fund that payroll taxes are meant to help sustain.
The House opting against participating in the deferral does not send confidence to other employers that Congress will ultimately waive collection of the deferred taxes.
But there were other considerations that went into the CAO’s decision on the matter, as Kiko outlined in a memo sent Wednesday to House Administration Committee Chairwoman Zoe Lofgren.
For one, House employees are paid monthly on the last calendar day of each month. CAO typically starts processing payroll on the 20th of each month, before the pay period has ended, and would be unable to implement the changes needed to process the deferral this month, Kiko said.
That means if the House were to implement the deferral, employees would not see higher paychecks before the end of October.
Kiko said the CAO’s vendor for tax calculating software has not indicated they could implement all the components needed to process the deferral, meaning CAO would need to develop manual workarounds that could lead to payroll errors.
The chance of errors is especially high because there is no set salary structure for House employees. Each member office determines how much to pay employees and can make salary adjustments through the year, which makes it difficult for the CAO to calculate all employees’ eligibility for the deferral since there is an income cutoff, Kiko said.
Another factor the CAO considered is that there will be a lot of staff changeover after the November elections.
“During a typical congressional transition upwards of 15 percent of House employees change employing offices or separate from the House as their employing member departs,” Kiko said.
The CAO would have to develop “manual processes” for tracking departing employees for the purposes of collecting the deferred taxes next year, Kiko said, citing a “high risk" the CAO would be unable to collect the taxes on its own and would have to use the Treasury Offset Program to initiate collections against separated employees.
The taxes would still be due by the end of April, so the CAO would have to find the funds to cover any uncollected.
House Ways and Means ranking member Kevin Brady introduced legislation on Friday to forgive payroll taxes deferred under Trump’s action using general fund revenues to replenish the losses to the Social Security Trust Fund.
The Senate Sergeant-at-Arms did not respond to an inquiry about whether the Senate would be deferring payroll taxes for its employees.
Chris Marquette contributed to this report.