By Richard Rubin 

WASHINGTON -- President Trump's decision to defer payroll taxes until the end of the year is leaving challenges for lawmakers to manage after he leaves office in January, and they haven't figured out what -- if anything -- to do.

Members of Congress in both parties weren't keen on the August executive action, which let employers stop collecting the 6.2% Social Security payroll tax from many workers in the final four months of 2020. The move was meant as a form of relief during the economic slump caused by the coronavirus pandemic, but few employers stopped withholding.

That created a predicament for Congress. Employees whose payroll taxes temporarily shrank will face double withholding starting in January, which could pinch households that haven't planned for it.

Doing nothing could cause harm for those workers, but helping only them could be unfair to others whose taxes continued to be withheld.

"No one will be happy no matter how that gets resolved," said Mark Mazur, a former Obama administration official who now directs the Tax Policy Center. "It's kind of like a no-win thing."

Mr. Trump couldn't get Congress to cut payroll taxes, so he used the administration's ability to defer tax deadlines after a disaster to delay payments of the employees' portion of Social Security taxes. He promised that if he won re-election, he would push to turn that delay into a real tax cut.

The government offer applied to people making $104,000 or less, who could have as much as $2,149 in taxes deferred. But most employers balked, wary of potential complexities and costs of deferring the tax and arguing that the deferral amounted to little more than a short-term, no-interest loan.

"President Trump was waving his arm and saying don't worry about it. You do worry about it," said Rep. Richard Neal (D., Mass.), chairman of the tax-writing House Ways and Means Committee.

Official figures aren't available yet, but payroll processor Paychex Inc. said take-up has been very low. The one big exception -- which could create pressure for Congress to act -- is the federal workforce, including many members of the military. Mr. Trump required executive-branch employees to participate.

Lawmakers, particularly those from the Washington area, support legislation to let employees decide whether their taxes can be deferred. As the weeks tick by toward the year's end, that becomes less feasible.

"I want workers fully protected from an ill-advised scheme that would hurt them and would hurt the overall fiscal stability of the [Social Security] program" funded by those payroll taxes, said Sen. Ron Wyden (D., Ore.), who has backed the option legislation.

Forgiving the unpaid tax has some appeal, because it would avoid the hardships of a sudden drop in paychecks and provide a boost to households. The payback can be particularly messy if employees have left their jobs before it is complete and the government needs to find them or seek payment from their employers.

"It's going to be very tempting on both sides to want to do that -- especially for the troops," said Rep. Don Beyer (D., Va.), whose constituents just across the Potomac River from Washington include many federal workers. "There will be an awful lot of pressure to just forgive it."

Rep. Kevin Brady (R., Texas) introduced a bill to forgive all deferred taxes, which is backed by 28 other House Republicans.

Allowing forgiveness at this point, after so many employers didn't participate, would give a windfall to federal employees and nothing to millions of other workers.

Lawmakers could just do nothing, which could create burdens for federal workers and military service members who face a drop in take-home pay in January and didn't save the extra money they are getting in 2020.

"The outgoing administration's executive order temporarily suspending payroll taxes for thousands of federal employees, without their consent, continues to be a threat to their personal finances," said Tony Reardon, president of the National Treasury Employees Union, which represents workers at agencies including the Internal Revenue Service and U.S. Customs and Border Protection. "Federal employees, at the very least, deserve much more time to satisfy this debt that was forced upon them."

Mr. Neal said lawmakers would probably wait to address the issue until after a new Treasury secretary is confirmed. President-elect Joe Biden has selected former Federal Reserve Chairwoman Janet Yellen for that position. Mr. Biden's transition team declined to comment.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

November 27, 2020 11:14 ET (16:14 GMT)