How The New Payroll Tax Deferral Might Affect You

August 12, 2020
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President Trump signed an executive order over the weekend to defer the payroll tax.  The problem is with such broad language, it is causes more questions than answers for both employees and employers. The Executive Order tells the Treasury Department stop collecting the employee’s share of Social Security and Medicare taxes, which is 7.65% of your income (6.2% for social security and 1.45% for Medicare), from September 1 through December 31, 2020 only if you make less than $4,000 every two weeks. However the executive order states this is a deferral, meaning you will need to pay it back and while the Treasury Secretary could explore options, including legislation, to forgive the deferred taxes, there is no guarantee it will happen. If your company follows the order, defers your share of the taxes, and Congress doesn’t forgive the balance, you could be on the hook for the money in April or have less of a tax return you are expecting. Many companies are waiting for further guidance from the Treasury Department before making any adjustments to withholdings, so it may be a while before you see an extra 7.65% in your take home pay. As an employee, there isn’t much you can do now, but you can plan to start a dialogue with your employer as new payroll tax guidance unfolds. In the meantime, you can make sure your current withholding is enough.

SOURCE: JD Supra

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