“Since employees must still pay those taxes next year, this order is really an offer of a zero-interest loan rather than an actual reduction in tax liability,” said Michael Feroli, economist at J.P. Morgan. “It remains quite unclear whether employers will actually change withholding schedules, particularly if it could lead to financial uncertainties in 2021.”
Because questions about the constitutionality of the policy persist, businesses are likely to hold off any decisions at least until the government provides additional guidance. On Monday, several large corporations declined to say what they would do, because they wanted the Trump administration to provide more details first.
“We’re awaiting guidance from the U.S. Treasury Department on the payroll tax deferral, and we’ll make decisions on implementation once that’s been provided,” said Randy Hargrove, a spokesman for Walmart, the country’s largest private employer, with 1.5 million workers.
One option some employers might consider is to withhold the tax and repay workers later if it is eventually forgiven. But that would defeat the purpose of stimulating the economy now, when it could use the help.
If businesses are reluctant to reduce withholding because they may be liable to pay the tax later, they “might escrow the withheld amounts rather than pay the Treasury, and assure their employees that if the payroll tax liability is eventually forgiven by an act of Congress, the business would cut the appropriate check to their employees,” said Itai Grinberg, an international tax policy professor at Georgetown University Law Center.
Payroll experts said many businesses would be hesitant to do anything until they had assurances from Congress that they and their employees wouldn’t have to make good on the deferred taxes next year.
“It’s a little bit of a risk that Congress may not act, and if you’re deferring a significant amount of taxes the reality is, a few months later, you’re going to have to come up with that cash and pay those taxes,” said Pete Isberg, vice president of government relations for ADP, a payroll specialist that serves more than 800,000 businesses.