Did Donald Trump avoid Social Security and Medicare payroll taxes, too?

If so, he’d be at least the third well-known politician to rely on a gimmick to avoid payroll taxes on consulting income.

Evan Vucci/AP/File
Republican presidential candidate Donald Trump speaks during a town hall in Sandown, N.H.

New information surfaced Friday that suggests that Donald Trump may not only have used aggressive tax planning to reduce his income tax bill to zero, he may also have avoided paying any Social Security and Medicare payroll tax on a substantial amount of his income. If so, he’d be at least the third well-known politician to rely on a gimmick to avoid payroll taxes on consulting income.

S&P Global Market Intelligence reported that Trump received $583,000 of salary and $4.83 million of “other compensation” from his hotels and casinos in 1995, which was reflected in a 10-K filing for Trump Hotels & Casino Resorts Holdings LP.  Last Sunday, The New York Times published the front page of Mr. Trump’s 1995 New York State tax return, which showed that he reported only $6,471 of wages that year.  How can these figures be reconciled?

Trump might simply have misclassified some or all of the $5.41 million, perhaps because his various enterprises sent him 1099-MISC tax forms for consulting fees rather than W-2s for wages.  But in its SEC filings, Trump Hotels & Casino Resorts described the $583,000 as salary, which is hard to treat as consulting fees on a tax return.  While payments to directors generally are treated as consulting fees, Trump Hotels & Casino Resorts did not pay any director fees to employees or consultants (it did pay director fees of $50,000 annually plus $2,000 per meeting to non-employees.)  

But there is another possible explanation. Trump Hotels & Casino Resorts may have paid the $5.41 million to Trump Plaza Management Corp., a corporation beneficially owned by Trump, and most likely an S corporation.  If so, Trump Plaza Management would in turn pay salary or distribute its profits to Trump. The company would have to withhold payroll taxes on any of Trump’s income treated as salary, but not on profits distributed to him.

To avoid abuse, management companies are supposed to treat a reasonable portion of such compensation as salary and send their owners W-2s.  However, the companies often ignore this requirement and distribute most of their owners’ compensation as profits to avoid payroll taxes on a large chunk of income. This technique became notorious after being used by two well-known politicians—former Democratic presidential hopeful John Edwards and former Republican Speaker of the House (and presidential hopeful) Newt Gingrich. Thus, it became known as the Gingrich-Edwards loophole.

If Trump had used this gambit in 1995, he could have saved about $164,000 in payroll taxes. (He otherwise would have paid about $7,600 of Social Security taxes [12.4% * $61,200, the maximum base in 1995] plus $157,000 of Medicare taxes [2.9% * $5.41 million, with no cap on the tax].)  Had Trump continued to receive compensation this way, he could have avoided payroll taxes on it for years.  

Of course, we will not know for sure unless Trump releases his tax returns. 

This article first appeared in TaxVox.

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Did Donald Trump avoid Social Security and Medicare payroll taxes, too?
Read this article in
QR Code to Subscription page
Start your subscription today