Self-employed won't get to defer taxes under Trump's payroll break

Doug Sword, CQ-Roll Call on

Published in Business News

Millions of self-employed individuals would be left out of President Donald Trump's move to defer payroll taxes for the last four months of the year, according to tax experts.

That's because the executive action specifically refers to taxes paid under Sec. 3101(a) of the Internal Revenue Code, which set the Social Security tax rate at 6.2% for those employed by someone else. There is no similar reference to Sec. 1401(a), which requires the self-employed to pay 12.4% on their own wages, or both the employer and employee share of Social Security taxes.

The $2 trillion March relief package allowed companies to defer their portion of Social Security payroll taxes and pay them back in stages, half by mid-2021 and the rest a year later. That included half of the 12.4% rate paid on self-employment income.

But the rest of the taxes that individuals who work for themselves -- and earn less than six figures annually -- would otherwise owe wouldn't be deferred, either under the March law or under Trump's memorandum, which he signed Saturday.

"Maybe they intended to do that and they just hadn't added that in," said Garrett Watson, senior policy analyst at the Tax Foundation. "Strictly speaking, reading the memoranda, it's not in there."

"There is no reference to the sections that apply to the Social Security tax on self-employed income," Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, wrote in an email. "Whether they realized that is another matter!"


Holtzblatt is the former unit chief for tax policy studies in the Tax Analysis Division of the Congressional Budget Office.

Watson noted that self-employed persons pay their taxes as part of after-the-fact estimates. Payroll taxes for the self-employed for Sept. 1 through Dec. 31 wouldn't be paid until Jan. 15, 2021.

"One could argue, though, that self-employed workers already have a de facto deferral," he said. Unlike those employed by companies, the self-employed would have to pay up on Jan. 15. The executive order doesn't address when other workers would have to repay their deferrals, which means employers could decide to start withholding double the usual amount shortly after the first of the year.

Keith Hall, chief executive and president of the National Association for the Self-Employed, said he "would be shocked" if this "uneven playing field" remains in the eventual guidance to employers that Treasury is working on, in which the agency will answer questions employers may have. Hall said barring an administrative fix, he thinks the issue would be corrected in an eventual relief bill lawmakers agree to.


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