President Trump recently signed an executive order to defer payroll tax for a short period of time. In theory, this would assist Americans struggling from the economic effects of Coronavirus by keeping more money in every paycheck for a specified time.
Below we’ve broken down some of the basics you should know about this payroll tax deferment.
What is payroll tax and a payroll tax holiday?
Payroll taxes are paid by both the employer and employee for contribution to federal programs such as Medicare or Social Security. President Trump’s order specifically defers the 6.2% employee’s share of Social Security contributions.
Who is eligible for the payroll tax holiday?
To qualify for this payroll tax holiday, a person must earn less than $4,000, pre-tax, every two weeks. People currently unemployed are not eligible. It is not yet clear if self-employed and those who pay Social Security taxes with income taxes will be eligible.
How long is the payroll tax holiday?
As it’s stated in President Trump’s executive order, there will be a four-month period from September 1 to December 31 for the payroll tax holiday.
Does this guarantee I will have a larger paycheck?
This payroll tax holiday is simply a deferment of Social Security tax payments. Without further action or legislation, repayment will be required sometime next year. It is up to the employer if they choose to hold onto the excess funds now in anticipation of the repayment or give the excess funds to employees right away through increased paycheck amounts.
Do I have to pay this amount back later?
Currently, this is a payroll tax deferment, meaning you will need to pay the amount back at some point. Treasury Secretary Steven Mnuchin has the ability to forgive the deferment according to President Trump’s executive order.
While this is not the first payroll tax cut in our country’s history, there is still much that is unclear about it. Read the full article about this memorandum at CNet.com.