Unions Slam ‘Chaotic’ Payroll Tax Deferral for Federal Workers

Unions representing federal workers are bashing the administration’s decision to force government employees to participate in the president’s payroll tax deferral.

The Trump administration—in an attempt to provide a financial boost to individuals who have been impacted by the coronavirus pandemic—is allowing employers to temporarily pause collection of a tax normally taken out of employees’ paychecks to fund Social Security. The deferral, made possible by an executive order signed by President Donald Trump in August, went into effect Tuesday.

Rachel Semmel, a spokesperson for the White House Office of Management and Budget, confirmed Tuesday that the Executive Branch is implementing the deferral to give federal government employees tax relief as quickly as possible.

But according to unions representing federal workers, it will actually create more hardship by requiring employees to pay twice as much tax in the beginning of 2021 to cover any deferred taxes.

“While many major private-sector employers are walking away from this ill-conceived initiative, the government is forcing it upon the federal workforce,” said Tony Reardon, national president of the National Treasury Employees Union, which represents about 150,000 workers in 33 departments and agencies.

Reardon in a statement Tuesday called the roll out of the deferral for the federal workforce “chaotic and confusing,” saying employees have been provided with few details on when it will take effect and how the money will be recouped in 2021.

The roll out also drew backlash from the American Federation of Government Employees, which represents about 700,000 federal workers. AFGE National President Everett Kelley in a statement Tuesday called the payroll tax plan “a scam that leaves workers with a substantial tax bill right after the holiday season.”

The White House didn’t immediately return a request for comment.

Impact on Social Security

Trump has repeatedly spoken in favor of cutting payroll taxes as an economic stimulus measure, but his proposal didn’t gain much traction with congressional leadership. When negotiations on another relief packaged stalled, Trump signed the order to defer the collection of payroll taxes.

The payroll tax deferral will result in an average of roughly $500 per month extra take-home pay for eligible federal workers for the remainder of the calendar year—all of which will need to be paid back in 2021, said Jacqueline Simon, public policy director for AFGE.

If the administration is able to convince Congress to pass legislation that forgives employees’ obligation to repay the money, that could cause problems for the Social Security system, Simon said.

Among elderly Social Security beneficiaries in the U.S., about 21% of married couples and 45% of single people rely on Social Security for 90% of their income, she said, citing information from the Social Security Administration’s website.

Treasury Secretary Steven Mnuchin, during a House coronavirus hearing on Tuesday, denied the deferral would hurt Social Security.

“This is a deferral, so it will be paid back,” Mnuchin said. “And if we pass legislation then in the legislation this would come out of the general fund and it would make Social Security whole.”

—With assistance from Colin Wilhelm (Bloomberg Tax) and Saleha Mohsin (Bloomberg News).