A payroll tax holiday could mean bigger paychecks for workers.
Sarah Tew/CNETA payroll holiday may sound like bliss, but the tax cut President Donald Trump signed in a memorandum isn't a free ride at all. We'll break down all the details below. It's a deferral of payroll taxes for a number of months, theoretically giving some Americans more money in every paycheck, for a limited time.
A payroll tax cut has long been on Trump's personal wish list as a form of coronavirus aid, alongside a second stimulus check, enhanced unemployment benefits and eviction relief (which wasn't renewed). The president's unilateral directive on payroll tax wasn't part of the Senate's HEALS Act proposal for the stimulus package and isn't a key consideration in the stimulus bill debates between the White House and Democratic negotiators.
Here are the details you really need to know about the payroll tax cut, including how long it lasts (the duration may be shorter than you think) and if you'll have to pay back the tax you owe in 2020 or 2021.
What is the payroll tax and how is it used?
A payroll tax is a tax on both an employer and employee that contributes to a federal program such as Medicare or Social Security. In the case of Trump's executive action, it's referring to the Social Security tax that is taken from an employee's paycheck and also paid by the employer.
The way the Social Security tax works is that 6.2% is deducted from an employee's paycheck. That same amount is also required to be paid by the employer, making a total of 12.4% sent to the IRS. A payroll tax cut would mean that employees and employers would be exempt from paying this tax during a set "holiday" period, potentially making your paycheck larger (though there's a catch -- more below).
Watch this: Stimulus Check Standoff
1:35
How much money could I get from a payroll tax cut?
Paychecks typically show the amount withheld for Social Security, which equals 6.2%. For example, an eligible worker making $938 every two weeks will take home a paycheck worth $1,000, or $62 more than usual.
Who is eligible for the payroll tax holiday?
The only requirement specified in the executive memo is that you earn no more than $4,000 every two weeks, for a maximum of $100,000 per year. People who earn more than that will not be able to participate in the payroll tax holiday. It's unclear how Trump's payroll tax deferment would affect self-employed workers and contractors who typically pay their Social Security taxes with their income taxes.
Since it applies to employed people, the 38 million jobless Americans will not be eligible for the payroll tax cut.
Is the payroll tax holiday too good to be true? It's not as straightforward as it seems.
Sarah Tew/CNETHow long will the deferred tax period last?
According to the executive memo, the payroll tax holiday will start on Sept. 1 and last until Dec. 31 -- that's a four-month period.
How you might not get any extra money at all
Whether or not employees actually see a bigger take-home check isn't guaranteed, even with the executive action in place. It'll be up to employers to decide what to do with the excess funds: whether to give them to employees or hold onto them to pay back to the government sometime next year.
Why do you have to pay back the payroll tax money you get?
The payroll "holiday" is a pause as it's written, not a forgiveness of tax contributions. The executive memo does say the Treasury Secretary, Steven Mnuchin, can decide to forgive the deferment, and the president said in recent press briefings he might forgive the debt if he gets reelected.
If that were to happen, it isn't clear what, if anything, employers who held the money will be compelled to do with it, which likely won't be answered until the Treasury Department provides guidance on the matter.
Garrett Watson, a senior policy analyst for the Tax Foundation, says there's a lot of uncertainty on what employers will be required to do according to the Treasury Department and what they're legally allowed to do according to state laws. California, for example, has strict laws stating that employers can't withhold wages from an employee's paycheck. Other states have different rules. Then things could potentially become messy if an employee leaves their jobs during this payroll tax holiday.
How do you pay back the deferred payroll tax?
That is still unclear. Much of the memo leaves the specifics of the payroll tax holiday to the Treasury Secretary. One possibility is that the taxes you owe would be incorporated into your 2020 income taxes.
But those receiving a paycheck aren't the only ones needing to pay back these taxes.
"Employers are gonna have to come up with the money, one way or another," said Samantha Jacoby, senior tax legal analyst at the Center on Budget and Policy Priorities. "They might take the entire deferred tax from one paycheck at the end of the year, for example, which would likely surprise a lot of people who think they got a tax cut."
Don't count on payroll tax forgiveness.
Sarah Tew/CNETIs a payroll tax holiday definitely happening?
Even though the president's other executive actions are legally questionable in regards to whether they're unconstitutional, the payroll tax holiday is within Trump's executive powers, according to Jacoby.
It would be employers or companies who handle payroll and human resources for employers who could make a case against this action for some logistics reasons. Aside from that, there is little sign of any formal opposition to the holiday in terms of lawsuits.
How will the payroll tax affect employers and employees?
The ideal situation for employees is a bigger paycheck during the four-month holiday without having to repay the money in 2021. Less ideal: Workers could see no difference in their paycheck as their employers decide to hold on to the money.
As for employers, the best case scenario is for them to not pay the payroll tax either. Some could also make additional funds by holding on to their employees' wages in an escrow account that can accrue interest. At worst, employers will have a large tax bill in 2021.
How could the holiday impact Social Security funding?
The president said in a press briefing Wednesday that Social Security will receive funding from the General Fund, which is the country's account to pay for the daily operations of the government. What happens after the holiday will seemingly depend on who wins the upcoming election.
Have there been other payroll tax cuts?
In 2011 and 2012, Congress approved a 2% payroll tax holiday for Social Security. This was intended to keep the George H.W. Bush-era tax cuts while also providing more funds to taxpayers in hopes of stimulating the economy. The result was a $10 billion loss per month to Social Security.
Here are more resources on the executive actions on student loans, halting evictions and unemployment benefits. We also have info on the status of the second round of stimulus checks, what the next aid package looks like and how negotiations are going between the Democrats and Republicans.
"pay" - Google News
August 17, 2020 at 04:15AM
https://ift.tt/3asvmJB
Trump's payroll tax plan: When the 'holiday' starts, how much you get, when you pay it back - CNET
"pay" - Google News
https://ift.tt/301s6zB
Bagikan Berita Ini
0 Response to "Trump's payroll tax plan: When the 'holiday' starts, how much you get, when you pay it back - CNET"
Post a Comment