The U.S. Chamber of Commerce has sent a letter,[1] signed by the Chamber and a number of business industry organizations, to Treasury Secretary Mnuchin, House Speaker Nancy Pelosi and Senate Majority Leader Mitch McConnell stating that many of the employers who are members of the organizations will likely decline to participate in the payroll tax holiday outlined in the Presidential memorandum issued earlier in August. The organizations indicate that the lack of forgiveness for the taxes not withheld creates issues for both employers and employees.

The letter notes that:

Under current law, the EO creates a substantial tax liability for employees at the end of the deferral period. Without Congressional action to forgive this liability, it threatens to impose serious hardships on employees who will face a large tax bill as a result of deferral.

The letter contains a table of example amounts of total deferral that would come due in a lump sum under the current proposal, showing that an employee with a $50,000 annual income on a biweekly payroll would, presuming there will be 9 pay periods from September 1 to December 31, see a weekly increase in pay of $119.23, but would then owe $1,073.08 in a lump sum once the deferral ends.

The letter notes the major problem comes from the memorandum merely providing for a deferral of the tax:

If this were a suspension of the payroll tax so that employees were not forced to pay it back later, implementation would be less challenging. But under a simple deferral, employees would be stuck with a large tax bill in 2021.

Absent Congressional action to provide for forgiveness, the letter concludes that many, or even most, employers will reasonably conclude the best course is to just continue to withhold and remit the taxes under current law, ignoring the deferral:

Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year. It would also be unworkable to implement a system where employees make this decision. Therefore, many of our members will likely decline to implement deferral, choosing instead to continue to withhold and remit to the government the payroll taxes required by law.

The letter concludes by asking the Administration and Congress to take action on this matter:

We hope Congress and the Administration come together on a path that supports workers instead of burdening hardworking Americans with a large tax bill next year.

[1] “Implementation of the Executive Order Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster,” Letter from U.S. Chamber of Commerce, August 18, 2020, https://www.uschamber.com/sites/default/files/200818_coalition_payrolltax_eo_mcconnellpelosimnuchin.pdf (retrieved August 19, 2020)