Legislation Would Make Payroll Tax Deferral Optional

Press Release October 9, 2020

Washington D.C. – Federal employees could choose whether to participate in the president’s payroll tax deferral program under new legislation endorsed by the National Treasury Employees Union.  

The Protecting Employees from Surprise Taxes Act by Sen. Chris Van Hollen (D-MD) would require written consent from employees before any more of their payroll taxes are deferred until next year.  

“This payroll tax deferral plan is nothing but a temporary loan program and federal employees deserve to choose whether they want to participate,” NTEU National President Tony Reardon said. “We appreciate Sen. Van Hollen and his growing list of cosponsors for looking out for workers who want to protect themselves from the burdens of higher taxes and smaller paychecks come January.”  

The deferral, created by an executive order signed by President Trump, is already in effect for federal employees who earn less than $4,000 per pay period after several pre-tax deductions are subtracted. NTEU estimates that hundreds of thousands of federal workers were forced into the deferral, which results in larger paychecks for the rest of 2020, but smaller paychecks when the taxes are collected January through April of 2021.  

The legislation to be introduced in the Senate would require employers explain the tax consequences of the deferral and the provide employees with the right to consent or decline.   

NTEU has been critical of the administration’s implementation of the program. While the legislative and judicial branches of the federal government decided not to participate, employees in the executive branch were forced into it without sufficient explanation of when the deferrals would start, how employees could calculate whether they were subject to it, and how the deferred taxes will be collected by the government next year. NTEU on Sept. 2 asked the director of the Office of Management and Budget for more information on these issues, but we have not received a response. 

“Under Sen. Van Hollen’s bill, federal employees who want to participate in the deferral would be able to continue doing so, which is how the federal government should have structured the program in the first place,” Reardon said.   

Although the Protecting Employees from Surprise Taxes Act would not be retroactive to those taxes already deferred, it would allow federal employees to opt-out going forward, which would minimize their added tax obligations next year.  

NTEU represents about 150,000 employees at 33 federal agencies and departments.