It’s also incredibly difficult for many employers to re-program their payroll systems, said Pete Isberg, a vice president at payroll processor Automatic Data Processing Inc. A few companies may be able to have systems ready to go by Sept. 1, but it will take most longer -- possibly months -- to make the changes that will require more clarifications from the Treasury Department and IRS about how the executive order works.
“There are a lot of things that aren’t clear. Is this optional? Do employers have an option? Do employees have an option? Do employees still get Social Security credit if they don’t pay anything in? How do you define compensation?” said Edward Karl, vice president of taxation at the American Institute of Certified Public Accountants.
Treasury Guidance
The Treasury Department is working on guidance to implement the order. Employers are hoping that will clarify whether -- if they pass on the tax savings to employees -- they will still be on the hook for paying when the taxes come due or if the onus shifts to employees.
The amount of deferred taxes could be as much as much as $2,232 for someone earning up to $4,000 every two weeks, according to Isberg. That could cause problems for taxpayers who aren’t used to paying their own payroll taxes directly.
“It’s not a tax cut, it’s not a rebate, but you will have folks who will view it as a tax cut,” said Marc Gerson, a member at law firm Miller & Chevalier Chartered. “It will almost be a surprise to them at the end of the year, and that is something that could force congressional action to extinguish the debt.”
--With assistance from Michael Bologna and Jordyn Holman.
This article was provided by Bloomberg News.