The Journal Gazette
Thursday, September 10, 2020 1:00 am

State passing on payroll tax holiday, lets firms decide

NIKI KELLY | The Journal Gazette

INDIANAPOLIS – The home state of Vice President Mike Pence is not signing onto the payroll tax holiday for its nearly 31,000 government employees.

President Donald Trump pushed through the deferral via executive order when Congress couldn't agree on a new aid package. But employers can choose whether to participate, and many of them are saying “no thanks.”

Gov. Eric Holcomb said Wednesday he decided to forgo the program because it is a delay and then employees simply have to pay double in January. 

The payroll tax holiday or deferral gives employers the option of deferring the 6.2% Social Security payroll tax that is normally deducted from employee paychecks. This would mean more take-home pay for employees from Sept. 1 through Dec. 31.

But starting in January through April, employers would double the deduction to make up for the holiday. The deferral only applies if an employee's biweekly compensation is less than $4,000.

James C. Marcuccilli, chairman of STAR Financial Bank in Fort Wayne, said the technical challenge of revamping the system for only some employees outweighs the benefits. And he noted that if an employee resigns or is fired the company would be unable to withhold from their paycheck – leaving the company on the hook for paying the full amount back.

“It looks good on the surface until you get to all the details,” he said. “The complexity is just too much.”

STAR Financial decided not to participate, as well.

The Indiana Chamber of Commerce noted on its blog a few days ago the details but didn't lobby one way or another.

“Employers have to make the determination if this short-term employee relief is worth the tradeoff,” the blog said. “The responsibility is on the employer to withhold and pay any deferred taxes.”

Jeremy Reidy, partner at Barnes & Thornburg in Fort Wayne, has been handling the firm's coronavirus and CARES Act guidance, including business considerations.

“Most of the companies I'm talking to are skeptical of it when they are calling me. Most of them have made up their mind that they don't want to participate and it's almost like they are looking for confirmation from me,” he said. “So I lay out the positives and negatives from employer and employee perspective.”

From an employee perspective, it is extra money in their pocket – 6.2% of income in the short term. But they would also have to budget to pay that money back in 2021, which would be a loss in pay later.

Reidy said from an employer perspective, the only benefit is any goodwill it might temporarily instill in employees – “and really that's a pretty small benefit.”

He said the administrative burden on companies would be significant – adjusting payroll processes and systems not once but twice. And because not all employees qualify much of the work would be manual.

Reidy also said he would recommend if a company decides to participate to educate employees and possibly ask them to provide written consent so there is no confusion on obligations later.

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