U.S.-China Tariffs, DOL Independent Contractor Rule, Student Loan Repayment

Hey everybody, it's Gene Marks and welcome to this week's episode of the Week in Review, a Paychex THRIVE podcast. Thank you so much for joining me. This is the podcast where we take a few items from the news, and we talk about how it impacts your business and mine. So, let's get to it.

This week the big news is tariffs and China. On Monday, President Trump and the Trump administration announced to a major deal with China that put tariffs on hold for about 90 days. So, according to the Wall Street Journal, the reciprocal tariff on China is going to fall from 125% to 10%. A separate 20% tariff the president imposed over what he described as China's role in the fentanyl trade will remain.

Beijing will cut its retaliatory levies on goods to 10%, from 125%. The U.S. said the reductions would last for 90 days while talks continue. Treasury Secretary Scott Bessent said meetings over a fuller deal would likely start in the next few weeks, but it will be implausible for reciprocal tariffs on China to fall below 10%.

So, still a lot has to be worked out. A lot more news has to come out about this, but certainly it's a big relief to small businesses around the country and obviously to financial markets, as well, which accepted the news, as you can imagine, very positively.

I do want to warn you if you're watching this that this is not over with China. I still hold to my prediction that a lot of the trade agreements that the Trump administration is working on right now with Mexico, Canada, the EC and other countries are likely going to be resolved within the next 90 days. The Chinese trade agreement is going to be something different.

Going back to 2018, the Trump administration was asking for a lot more than just tariffs. They're asking for a reduction in certain limitations to do business in China. For example, requiring American companies to have a 20% Chinese joint venture to eliminate technology transfers, which were required for American companies to do business in China. And, also, to do something about all the stealing of technology and data that the Trump administration at the time was accusing the Chinese government of doing.

My prediction is a lot of these issues are going to be coming back up again, and I do think there is going to be a lot of volatility in trade between China and the U.S. But what this does do is it gives American companies a little bit more time to figure out what they need to do.

If you're still buying products from China, sure, take advantage of this lull in the tariffs to buy up products and make sure they get into your warehouse. That's fine. But long term, I strongly recommend you find alternative suppliers or move stuff back here to the U.S. because I do predict that relationship with China from a trade standpoint is going to be very volatile over the next three years, and I think we're just getting a little bit of a stay of execution right now while the two countries try to figure out where they both stand.

Regardless, it's still good news for small businesses and for the markets that these tariffs are put on hold for the next 90 days.

Next bit of news kind of ran under the radar screen, but I thought was very important for small businesses, including mine. According to HR Dive, the Department of Labor has ordered their staff not to enforce the Biden-era independent contractor rule. The Labor Department is still considering whether to rescind the rules, which faces ongoing litigation. This was announced last week.

Now, if you remember, during the Biden administration, the Department of Labor issued rules around independent contractors, saying that they if they were among many other things, if they were integral to a business there would be a good case for classifying as independent contractors as employees in your business, including paying benefits, giving them worker’s rights, the ability to join unions, and other things like that.

Those rules were following pretty much behind the ACT 5 rules from California, which also made it easier or forced a lot of companies to reclassify independent contractors as employees.

Well, those Biden rules were issued, of course, during the Biden administration. But now the Trump administration is saying, hey, we're not going to enforce those rules, and not only that we might rescind them, as well. So, for those of you that are running companies that are using independent contractors like mine, as well, it's a bit of a relief right now to figure out what's going on.

My recommendation with all the things that are in flux is that you talk to your representatives at Paychex or your labor attorney or your HR advisors to figure out what is best for your company. But the good news is these independent contract rules look like they're going to be relaxed a little bit for many businesses, and that's certainly good news for me, as well.

Finally, the Trump administration last week announced that they're going to restart student loan collections for millions in default after a year’s-long pause. This is an article from CNBC. The U.S. Department of Education announced they're going to resume collecting on these defaulted loans. More than five million borrowers are in default and that total could swell to roughly 10 million within a few months, according to the Trump administration.

The federal government has extraordinary collection powers on student loans, and it can seize borrowers' tax refunds, paychecks, and Social Security retirement, and disability benefits.

So, why does this impact you as a business owner? Well, if you have employees that are paying back their student loans, be aware that there is a very generous tax deduction still available until the end of 2025 that allows employers to pay back student loans, reimburse your employees up to $5,250 a year for their student loan repayments.

The employee does not get taxed on that reimbursement, and as an employer, you get a full deduction for that $5,250 – principal and interest included.

Now, that rule actually dates back to COVID and is stated slated to expire at the end of this year. It will be part of negotiations among Congress as we're heading into all these negotiations about the new tax rules in May and June. So, it might be extended or made permanent, but at least for this year, if you have any employees that are in trouble because of their student loans or maybe in default, you can help them out.

In addition, don't forget, SECURE 2.0 now allows employers to contribute to an employee's 401(k) plan as a matching contribution to their student loan payments. So, not only could those student loans be paid by your employee, but you can make a matching contribution, as well, to their 401(k) plan.

Again, talk to your Paychex representative, to your labor attorney, to your HR or tax advisor. Find out what the best scenario is, but it's a real opportunity for employers that want to help out their employees and get a tax benefit by doing just that.

My name is Gene Marks, and you have been watching and listening to this week's episode of the Paychex THRIVE Week in Review. If you are looking for advice or tips or help in running your business, sign up for our Paychex THRIVE newsletter. Go to paychex.com forward/thrive.

Thanks for watching and listening. We'll be back to you next week with some more news that impacts your business. Take care.

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I'm your host, Gene Marks, and thanks for joining us.

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