Massive Corporate Tax Holiday Could Cause Headaches Next Year
Worried about getting stuck with unpaid tax bills in 2021, private employers have largely passed on President Trump’s voluntary program that allows companies to defer the Social Security portion of employee payroll taxes until the end of the year. But an earlier rule change that allows companies to defer the employer portion of both Social Security and Medicare taxes has proven more popular. Some analysts, though, are starting to worry about what happens when those taxes come due over the next two years.
The collective bill will be substantial. According to the Joint Committee on Taxation, unpaid payroll taxes could total $211 billion this year.
“While this may be good for a short-term cash flow, it may backfire,” tax attorney Cameron Hess a told Bloomberg. The program could leave employers “under an even more serious financial crisis, with obligations owing to the U.S. Treasury.”
For the most part, analysts say the liquidity provided by the tax deferral – United Parcel Service saved $370 in the second quarter, for example, while Lowe’s saved $251 million – was worth it, coming as it did in the middle of the worst of the pandemic shutdowns, even though there may be some pain down the line.
“Things would be drastically different if we hadn’t had the flood of liquidity in the system from the CARES Act,” Mark Mazur of the Tax Policy Center said. “On balance, it has been more positive than negative. But there are going to be unintended consequences that we haven’t even anticipated.”
