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1.3 million federal workers will have payroll taxes deferred under Trump directive

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  • The Trump administration is implementing a payroll tax deferral for 1.3 million federal workers that’s set to take effect in mid-September.
  • The move would cause them to bring home smaller paychecks as the government doubles its payroll tax withholding from January to April 2021 to recoup the money owed.
  • The White House defended the move as one that would provide relief for employees.
  • Critics, such as Democratic Rep. Don Beyer of Virginia, ripped into the initiative and said it “treats the federal workforce like a guinea pig.”
  • Visit Business Insider’s homepage for more stories.

The federal government is moving to implement a payroll tax deferral for 1.3 million federal workers beginning in mid-September, which will prompt smaller paychecks for those employees earlier next year.

In early August, President Donald Trump signed an executive order to institute a payroll tax holiday. People earning under $4,000 every two weeks — or below $104,000 yearly — won’t have to pay the 6.2% tax out of their paychecks, which the government uses to fund Social Security. It’s set to begin Tuesday and end on December 31.

The government is the nation’s largest employer. The step would cause the federal government to double its withholding amount from January until April 30 of next year, so it can recoup the money owed from its workers.

Rachel Semmel, a spokeswoman for the Office of Management and Budget, said Trump acted when Congress failed to strike a stimulus deal.

“The President put forward this action to give relief to all Americans during this pandemic,” Semmel said in a statement to Business Insider. She added the executive branch is acting as an employer to “implement the deferral to give our employees relief as quickly as possible, in line with the presidential memo.”

Trump’s directive and the ensuing guidance released Friday from the Treasury Department and IRS triggered significant criticism from lawmakers, tax experts, and business leaders. The guidance was released only four days before the payroll tax holiday took effect, reducing the odds employers would be prepared to take part.

Read more: MORGAN STANLEY: The government’s recession response has the stock market heading for a massive upheaval. Here’s your best strategy to capitalize on the shift.

Democratic Rep. Don Beyer of Virginia — who represents a district where many federal workers reside — blasted the administration’s move, saying the measure “treats the federal workforce as a guinea pig for a bad policy that businesses already rejected as ‘unworkable.'”

Around 60% of the federal workforce earns below $100,000 annually, which is under the threshold that the Trump order sets, The Washington Post reported.

A senior administration said they are working to start the deferral for workers with their second paycheck this month, a date that falls around September 18.

However, scores of business groups in the private sector say they are unlikely to implement the deferral given the difficulties of designing a system where employees can opt out if they choose.

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