Payroll tax deferral to have ‘no impact whatsoever’ on Social Security benefits: US Treasury
Those taxes will eventually need to be repaid, the agency explained in a statement
President Trump delivers remarks on U.S. economy during Labor Day news conference.
The Treasury Department on Wednesday said funding for Social Security will remain stable despite President Trump’s payroll tax deferral.
The agency said it will continue to make regular transfers to the Social Security trust fund based on a previously determined schedule – and that it does not expect the deferral to have any effect on current or future payments received by recipients.
“We do not expect deferral to impact the Social Security Trust Funds because the deferral is temporary and all deferred taxes must be repaid,” a Treasury spokesperson said in a statement.
There have been concerns that the policy could damage funding for Social Security since the president has advocated for deferrals to be forgiven.
The payroll tax is paid separately from federal income taxes. It funds Social Security and Medicare. Employers and employees each pay 6.2% for Social Security and 1.45% for Medicare, and an additional 0.9% is levied on the highest earners.
The executive order applies only to the 6.2% Social Security obligation.
FEDERAL WORKERS TO HAVE PAYROLL TAXES DEFERRED AS GOVERNMENT EXECUTES RELIEF MEASURE
According to the IRS guidance, employers are able to defer payroll tax withholdings for employees with incomes below $4,000 during a bi-weekly pay period, calculated on a pre-tax basis, or the equivalent.
The deferral period will be Sept. 1 through Dec. 30, until a pay period begins on Jan. 1.
But even if the payroll tax deferral does not affect funding, the coronavirus pandemic might.
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The annual trustees’ report did not take the effects of coronavirus into account when it estimated that the program’s reserves would be depleted by 2035. At that time, levies were expected to be sufficient to cover 79% of scheduled benefits.
But an analysis conducted by researchers at the Penn Wharton Budget Model showed that Social Security is at risk of running out of funds as many as four years earlier than anticipated depending on the shape of the U.S. economic recovery.
An accelerated rate of depletion has largely been attributed to decreased payroll tax revenues due to a rapid decline in employment over the past few months. Unemployment benefits are not subject to payroll taxes.
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