The Statutory Authorization for President Trump's Memorandum Deferring Payroll Tax Obligations

26 U.S.C. 7508A gives the Secretary the authority to "specify a period of up to 1 year that may be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer" whether the "Payment of any income, estate, gift, employment, or excise tax or any installment thereof or of any other liability to the United States in respect thereof" was "performed within the time prescribed therefor . . . of such disaster or action."

|The Volokh Conspiracy |

Yesterday, I blogged about President Trump's Payroll Tax Deferral Memorandum. I'll presume familiarity with the mechanics of the memorandum. This post will consider whether the President has the statutory authority to implement this memorandum.

There are three primary statutes referenced in the memorandum.

Sec. 2.  Deferring Certain Payroll Tax Obligations.  The Secretary of the Treasury is hereby directed to use his authority pursuant to 26 U.S.C. 7508A to defer the withholding, deposit, and payment of the tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is attributable to the rate in effect under 26 U.S.C. 3101(a), on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020, subject to the following conditions.

I'll consider these three statutes in reverse order.

First, 26 U.S.C. 3101(a) imposes a 6.2% payroll tax:

In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to 6.2 percent of the wages (as defined in section 3121(a)) received by the individual with respect to employment (as defined in section 3121(b)).

Second, 26 U.S.C. 3201 establishes the percentage of compensation for certain taxes. It provides, in relevant part:

In addition to other taxes, there is hereby imposed on the income of each employee a tax equal to the applicable percentage of the compensation received during any calendar year by such employee for services rendered by such employee.

Third, 26 U.S.C. 7508A is the most important provision. The section is titled, "Authority to postpone certain deadlines by reason of Presidentially declared disaster or terroristic or military actions." The IRS relied on this statute to extend the filing date for income taxes from April 15 to July 15.

Section 7508A(a) provides:

In the case of a taxpayer determined by the Secretary to be affected by a federally declared disaster (as defined by section 165(i)(5)(A)) or a terroristic or military action (as defined in section 692(c)(2)), the Secretary may specify a period of up to 1 year that may be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer—

(1) whether any of the acts described in paragraph (1) of section 7508(a) were performed within the time prescribed therefor (determined without regard to extension under any other provision of this subtitle for periods after the date (determined by the Secretary) of such disaster or action),

(2) the amount of any interest, penalty, additional amount, or addition to the tax for periods after such date, and

(3) the amount of any credit or refund.

There are a few relevant cross references. Section 165(i)(5)(A) refers to 26 U.S.C. 165(i)(5)(A). That section provides:

The term "Federally  declared disaster" means any disaster subsequently determined by the President of the United States to warrant assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.

In this case, President Trump has declared a disaster pursuant to the Stafford Act.

Section 7508(a) refers to Paragraph 1 of 26 U.S.C. 7508(a). This section provides that certain tax deadlines may be postponed when a person is serving in a combat zone. But more important are the eleven specific acts listed in Paragraph 1 of Section 7508(a). They are:

(A) Filing any return of income, estate, gift, employment, or excise tax;
(B) Payment of any income, estate, gift, employment, or excise tax or any installment thereof or of any other liability to the United States in respect thereof;
(C) Filing a petition with the Tax Court for redetermination of a deficiency, or for review of a decision rendered by the Tax Court;
(D) Allowance of a credit or refund of any tax;
(E) Filing a claim for credit or refund of any tax;
(F) Bringing suit upon any such claim for credit or refund;
(G) Assessment of any tax;
(H) Giving or making any notice or demand for the payment of any tax, or with respect to any liability to the United States in respect of any tax;
(I) Collection, by the Secretary, by levy or otherwise, of the amount of any liability in respect of any tax;
(J) Bringing suit by the United States, or any officer on its behalf, in respect of any liability in respect of any tax; and
(K) Any other act required or permitted under the internal revenue laws specified by the Secretary;

The most important act is subparagraph (B): "Payment of any income, estate, gift, employment, or excise tax or any installment thereof or of any other liability to the United States in respect thereof."

Let's put these sections together. 26 U.S.C. 7508A gives the Secretary the authority to "specify a period of up to 1 year that may be disregarded in determining, under the internal revenue laws, in respect of any tax liability of such taxpayer" whether the "Payment of any income, estate, gift, employment, or excise tax or any installment thereof or of any other liability to the United States in respect thereof" was "performed within the time prescribed therefor . . . of such disaster or action."

Does the act in subparagraph (B) embrace the acts referenced in the memorandum: "withholding, deposit, and payment" of payroll taxes? I am not familiar enough with the mechanics of how payroll tax "withholding, deposit, and payment" works. But if those actions fit within subparagraph (B), then the Secretary can postpone the deadlines for up to a year. The memorandum only includes a four month extension (from September 1, 2020 through December 31, 2020).

These are my tentative thoughts. Please email me if you have a better grasp of tax law than I do.

Advertisement

NEXT: The Statutory Authorization for President Trump's Disaster Relief Memorandum

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Alternatively, Trump could use prosecutorial discretion and create tax sanctuaries.

    That would be easier, and definitely more legal.

  2. I had dinged Prof. Blackaman for not discussing the legalities of the EOs. I should have known more was coming.

    I also thought these EOs were much broader than they are. Foolish of me to take the Admin at it’s word.

    Not that this payroll nonsense isn’t awful, awful policy – a payday loan only for those currently working and with social security as collateral, but here we are.

    1. I had also dinged the blackman kid earlier for not discussing the legalities. He has at least done a better job in the last couple of posts. My apologies for jumping on the blackman kid.

      Perhaps more imminently relevant than either legality or political strategy is the implementation and practicability of these measures inasmuch that they actually get funds into the hands of a majority of the intended recipients within a reasonable period of time. Both David Super and Jim Tankersley see substantial logistical hurdles to speedy implementation and practicability.

      If the money doesn’t start landing into the hand of recipients fairly soon, trump’s opponents needn’t file any legal challenge, they can just wait, gaining leverage with each new day of misery. If the money does flow quickly, then the blackman kid’s boy (trump) wins and shows that it’s good to be the king in America.

  3. I don’t think it’s a good idea for Presidents to have this much discretion. But as soon as people started attacking the EO as clearly unconstitutional, I figured there was probably going to turn out to be some decent statutory basis for the action.

    That’s the way it has usually gone, whether it’s funding for the Wall, or whatever.

    1. That’s been my impression too, with the take-away being that those who defend political power really have no idea how much has been granted; their real, unstated, complaint is who the President is, rather than how much power he has.

      Reminds me of people who complain about police running rampant, then propose to fix it with new government powers. The problem is not the power police have or how badly they behave nearly so much as that the government simply intrudes far too much into private life.

      1. ” their real, unstated, complaint is who the President is, rather than how much power he has.”

        Yup, that was my point: They leap to declare his actions unconstitutional, without performing the due diligence they’d feel necessary in the case of another President. It’s because they have so much contempt for him they assume he’d walk into an obvious legal defeat, without even realizing it.

        Trump’s greatest political asset is his foes’ contempt for him.

  4. I am not familiar enough with the mechanics of how payroll tax “withholding, deposit, and payment” works.

    Here you go.

    1. That’s a good link but it does not address a fundamental question about this EO. Which is that it a deferrment not a relief.

      It is intended to help Trump’s reelection at the expense of whatever president is in office next year when the “loan” is to be repaid. If it is Trump then he is already re-elected and he can blame the fallout on the Democrats. If it is Biden then it isn’t Trump’s problem and everyone will blame the Democrats.

      1. That’s a good link but it does not address a fundamental question about this EO.

        True.

        I was just telling Blackman where to get the information he lacks, and maybe suggesting that it’s pretty easily accessible if he wants it.

        1. I was just telling Blackman where to get the information he lacks, and maybe suggesting that it’s pretty easily accessible if he wants it.

          There’s often considerable distance between “easily accessible” and “easily digestible.” As is often the case in the regulatory world, there are lots of higher-level overviews of this subject that don’t require navigating dozens of pages of language not written with clarity as a primary goal.

          1. there are lots of higher-level overviews of this subject that don’t require navigating dozens of pages of language not written with clarity as a primary goal.

            True, and a Google search will turn up a lot of them.

            Though I will add that lawyers complaining about lack of clarity in documents do not excite my sympathies.

            1. Though I will add that lawyers complaining about lack of clarity in documents do not excite my sympathies.

              Ah, so blanket stereotypes of certain groups are still acceptable. Is there a list somewhere so we can all get on the same page?

  5. It was simple common sense that deferring collecting taxes doesn’t raise the same kind of issues as spending money that hasn’t been appropriated. It seems that the statutes explicitly permit this. Still, it leaves employers ordinarily responsible for withholding their employees’ share and contributing their own in a pickle.

    1. The difficulty here is that employers are likely to continue withholding payroll taxes despite the deferral.

      They are, after all, going to have to pay them sometime, and if they haven’t collected the money as they go along they are going to have a big mess on their hands when that day comes.

      So really, all this will do is give employers an interest-free loan from the government.

      1. Paid for out of social security funds.

        1. There are no social security funds to pay anything out of.

          1. Yeah yeah, because money is fungible.

            But that’s what payroll taxes go to. All of the authorization-based programs – Medicare as well.

            This will wreck their budgeting.

      2. So, the trump/kudlow/stephen.moore brain-trust didn’t anticipate this effect, or they did and their goal was just to provide an interest free loan to employers and not necessarily help employees now?

        Or maybe this is just an opportunistic chance to start to bring down social security sooner rather than later?

        1. My guess is that they didn’t think about it, or if they did they didn’t care.

          The point, after all, was to put out something they could spin as helping workers, whether it accomplished much or not.

          Or maybe this is just an opportunistic chance to start to bring down social security sooner rather than later?

          I don’t think so. These guys aren’t that smart. Not close.

          1. And why not? Nancy has been refusing to pass legislation for political reasons, this is the response, and it’s a pretty good one.

            1. She passed a relief bill.

        2. It really is hard to understand how the administration thought this would be a winning strategy.
          As you point out, employers are very likely to continue withholding the Social Security tax. Employees who have been promised relief won’t see it in their take-home, and will either blame the President for failing to deliver or their employers for failing to pass on the benefit. Those employers will then turn on the administration for putting them in an impossible situation.
          There is plenty of time for this to play out, and the Democrats smartest response might be to just let it.

  6. For all the lefties crying foul, makes me remember when Obama would use executive orders every time he couldn’t get something through Congress and they would cheer. Funny how tables turn in the realm of politics…

    1. There is a lack of consistency about EOs all around. Will anyone other than Ben Sasse maintain a consistent position about EOs across administrations of different parties?

      1. Probably not because follow principles and being consistent makes you a loser in the power plays that are modern politics.

        1. This is why you should never take the standards you believe the opposition has as anything like the standards you hold yourself to.

          It turns partisans into nihilists.

          Does the Clinton Death List mean the GOP should start knocking out inconvenient Dems?

          1. Nah. Democrats are their own worst enemies.

  7. The employer and the employee each pay 7.65% of the employee’s salary as the combination of the Social Security and Medicare Taxes. The employer deducts the employee’s 7.65% from each payroll and pays the total 15.3% to the IRS.

    Back in March, the CARES Act allowed employers to defer payment of their share of the Social Security Tax (but not tne Medicare Tax) that would normally be due through the end of 2020.

    The CARES Act spelled out when the deferred payments would be due and how this would be done without reducting the cash ffow to the Social Security Trust Fund
    Neither of these are explained in the President’s Memorandum but should be.

    “Employer-side Social Security payroll tax payments may be delayed until January 1, 2021, with 50 percent owed on December 31, 2021 and the other half owed on December 31, 2022. The Social Security Trust Fund will be backfilled by general revenue in the interim period.”

    https://proconnect.intuit.com/taxprocenter/tax-law-and-news/cares-act-allows-employers-to-defer-employer-portion-of-social-security-payroll-taxes/

    The Memorandum also does not clarify the employer’s liability if the employee has left their employ by the time payment of the employees deferred share is due. Does the employer have to pay the IRS the deferred amount even if they have no way of recovering it from the employee? Can they deduct it when the employee leaves even though the deferral period has not expired?

Please to post comments

Comments are closed.