Iowa state government won't follow Trump's payroll tax deferral

The agency handling payroll for Iowa’s executive, judicial, and legislative employees will not follow President Donald Trump’s recent executive order allowing payroll taxes to be deferred for the last four months of this calendar year.

Wendy Noce, the Centralized Payroll program manager for the Iowa Department of Administrative Services, announced the decision in a September 4 email to state entities.

Trump signed four executive orders on August 8, including a suspension of payroll taxes from September 1 through December 31, 2020. He had previously sought a payroll tax cut, but that idea found little support even in the GOP-controlled Senate, because of the potential impact on the Social Security Trust Fund.

Lacking the power to cut payroll taxes without Congressional approval, Trump sought a back-door way to give workers a break from those taxes in the run-up to the November election. But Steve Wamhoff of the Institute on Taxation and Economic Policy explained that the executive order “created a situation that is bizarre even by 2020 standards.”

He has simultaneously failed to provide a real tax cut while also threatening the finances of the program most important to people’s economic security.

After the Treasury Department issued guidance on implementing Trump’s order on August 28, analysts such as Shahar Ziv of Forbes magazine predicted employer participation would be low. Treasury’s guidance

clarified that the short deferral of the tax was not an elimination of the tax and would leave employers on the hook for repaying the tax in early 2021. It also articulated that the deferral would only be for a few short months, which would likely reduce employee wages in 2021 as companies double employees payroll taxes.

Staff at the Iowa Department of Administrative Services reached the same conclusion. Noce’s September 4 email, enclosed in full below, said, “As this is a postponement of withholding and not a tax break from owing Social Security, we believe it is in the employee’s best interest to keep withholding social security taxes each pay period.” The decision affects approximately 20,000 state employees.

Governor Kim Reynolds has lent support to many bad ideas coming out of the White House. It’s good to know that even in the Reynolds administration, some officials were unwilling to give Trump a pre-election political boost at the expense of state employees’ finances.

UPDATE: The Iowa Board of Regents also opted not to participate in this scheme.
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Full text of September 4 email to state entities:

Good Afternoon

We are aware of the August 8 Presidential executive order related to the postponement of Social Security withholding for qualifying employees for the period of September 1, 2020– December 31, 2020. Last Friday, the IRS released guidance IRS Notice 2020-65 related to the implementation of this postponement. The guidance states that postponed taxes not withheld for the period must be withheld from January 1, 2021- April 30, 2021. Failure to do so will result in unpaid tax penalties.

As this is a postponement of withholding and not a tax break from owing Social Security, we believe it is in the employee’s best interest to keep withholding social security taxes each pay period. Centralized Payroll will continue to withhold social security taxes. This will keep employees from having double the Social Security withheld from paychecks starting in January 2021.

Please pass this along to your employees.

Thanks.

Wendy Noce
Centralized Payroll Program Manager
State Accounting Enterprise
Iowa Department of Administrative Services
(515)281-3976 Fax (515)281-5255
Wendy.Noce@Iowa.gov

Top image: Public domain official White House photo by Shealah Craighead, showing President Donald Trump signing a memorandum for continued student loan payment relief during the COVID-19 pandemic on Aug. 8, 2020 at a news conference in Bedminster, New Jersey.

  • What about other state employees?

    I haven’t seen any information from the Regents universities, for example, on whether they plan to do the same. Not sure why it’s so hard to communicate with your employees about this.

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