Something missing. Federal withheld gross income tax receipts continue to post large declines, missing the rebound in employment and wage and salary income. One wonders if the weakness in gross federal income tax receipts is related to confusion over the Paycheck Protection Program (PPP) as the plan to allows companies to defer certain taxes.
What’s Missing?
In October, federal gross withheld income tax receipts totaled $87.7 billion, off 19.2% from year-ago levels. The year-on-year decline last month was slightly larger than the 19.1% reported for September. Both months showed declines that were considerably larger than the 15% declines reported for July and August.
Also, October and September declines in tax receipts were not far behind the 24% decline reported for Q2. That makes no sense. Month on month relatively large job gains since the end of Q2 should result in more federal income tax payments and smaller year on year declines.
In October alone, the Bureau of Labor Statistics reported 2.24 million people found employment, and yet tax receipts showed a year on year decline that matched September, and far larger than what occurred in the summer months.
It is unclear why people are not paying federal income taxes that are in line with job and income gains. One of the possible answers could be the confusion and problems associated with PPP.
According to the Small Business Administration, 5.2 million companies participated in the program, with gross loans totaling $525 billion. Although there are reports of widespread fraud that alone is unlikely to explain fully the weakness in tax receipts.
The bigger issue may be the deferral of taxes. According to the guidelines of PPP, companies are allowed to defer their share of payroll taxes until December 31. But firms participating in PPP are not allowed to defer the employee share or employee income tax payments. Is it possible that small firms are deferring employee taxes as well?
The reason this could be important is that people are liable for their tax payments. If people are not properly paying federal income tax payments in 2020 then many will face a huge tax bill when they file their tax returns prior to April 15, 2021.
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