Extra money now, double taxes later
Your company likely won’t opt into Trump’s payroll tax deferment
Q:I read that President Trump issued an Executive Order getting rid of Social Security taxes until December. So far, I haven’t seen anything more inmy paycheck. When does it start?
A:First, a point of clarification: The president’s Aug. 8, 2020, Memorandum — not the same as an executive order — did not get rid of the employee’s portion of the payroll taxes that help support Social Security; it allowed employers to defer the taxes for some employees.
Deferring payment of a tax does not get rid of the obligation to pay the tax, it just delays it — a loan of sorts. Employees who receive a deferral of the 6.2 percent payroll tax get more money in their paychecks until the end of December, but the unpaid taxes must all be repaid by April 30, 2021. This means that workers who receive the deferral could find themselves paying 12.4 percent in payroll taxes (on top of federal and state taxes) beginning in January. Not all employees are eligible for the deferral — only those who make less than $ 4,000 every other week (around $100,000 per year).
Workers don’t get a say in whether they will be given the deferral — that decision is left up to the employer. So far, private employers have not been falling over themselves to implement the program. Some of the largest firms in the country have declined, including Costco, UPS, Fedex, JP Morgan, Home Depot, Wells Fargo and CVS. The U. S. House of Representatives has also declined to take up the deferral.
Most federal employees and military and civilian workers in the Department of Defense who qualify for the deferral, however, are being required to take it. Military Families Magazine, a free publication that provides news to service members, recommended that its readers refrain from spending the extra money so they can repay the deferral promptly and avoid a double tax in 2021.
The payroll deferral, proposed by a president as a way to stimulate the economy by putting more money in worker’s pockets, has been roundly criticized. It does not directly help the more than 13 million Americans who are out of work, makes no dramatic difference in the take- home pay of those who receive the deferral, and, some critics say, could jeopardize Social Security, which is already underfunded.
President Trump has claimed he will make the deferral “permanent,” if re- elected, but he cannot — that action would require an Act of Congress.
Unless your employer decides to opt in, don’t expect anything extra in your take-home pay. And, if you do receive the extra cash, you might want to hang onto it to help offset the smaller paychecks you’ll receive next year.
President Trump has claimed he will make the deferral “permanent,” if re-elected, but he cannot— that action would require an Act of Congress.
Attorney Daniel A. Gwinn’s Troy practice focuses on employment law, probate, trusts and estates. Contact him with your legal questions at daniel@gwinnlegal.com or visit the website at gwinnlegal.com. “Ask the Lawyer” is informational only and should not be considered legal advice.