What does the payroll tax mean for your finances?

Last month, President Trump issued a Presidential memorandum to defer payroll taxes for employees who earn less than $4,000 per paycheck biweekly. The payroll tax cut was one of four orders issued by the White House after Congress became deadlock to agree on a second stimulus package.  

But what does this mean for you as an employer? Or as an employee? 

How will the payroll tax cut work for employees? 

The Memorandum allows employers to “defer” (not forgive) withholding the employee’s share of Social Security payroll taxes for a certain period. This deferral will apply for the period of September 1, 2020, through December 31, 2020. This payroll tax cut is only available to those who earn less than $4,000 biweekly per paycheck.  

How much can employees expect to save during this time? 

Keep in mind; payroll taxes consist of both the employer’s and employee’s share. This Memorandum allows for a deferral of the employee’s share of Social Security taxes only. Currently, the Social Security tax is 6.2%, which means a person who earns a paycheck of $4,000 biweekly will see a cost savings of $248 per paycheck.  

Will employees have to pay this money back? 

Yes. The Presidential Memorandum indicates employees must pay this money back from January 1 through April 30, 2020. During this time, employees will have to pay back a double portion of their share of Social Security taxes during that time. While the Memorandum does state avenues will be explored to provide tax forgiveness, at this time, employees must repay. 

Are employers able to opt-out of the program? 

Yes. Employers can opt-out of the program. If you are an employee and you have additional questions, make sure to speak with your human resources to determine what options may be available. Lastly, if you are an employer, reach out to your payroll processing company to determine the best avenue to take at this time.  

Kemberley Washington, CPA, is a financial news contributor for WDSU, author, and owner of Washington CPA Services, LLC. Follow her @kemcents!

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