getty
An executive order signed by President Trump in early August provides a payroll tax holiday for American workers that can be implemented starting today.
With Congressional leadership still negotiating the next stimulus package to provide economic relief during the coronavirus pandemic, Trump announced four executive orders at a briefing on Aug. 8.
The payroll tax holiday has the potential to put more money in workers’ wallets, but it’s only a temporary measure—and one that could have negative consequences down the road.
While the tax holiday begins today, some confusion remains about whether employers will participate and how the deferral will impact workers who are already feeling financially strained.
Details of Trump’s Payroll Tax Holiday
Trump’s executive order directs the secretary of the Treasury to defer some payroll tax obligations.
Any employee who is paid less than $4,000 before taxes per bi-weekly pay period is eligible.
The deferral period is Sept. 1 through Dec. 31, 2020.
Typically, employees and employers each pay half of the total 12.4% Social Security tax due for each worker. But under the executive order, employers may choose to refrain from withholding the 6.2% from employees for Social Security, but must still contribute their own portion for each worker.
The deferred amounts won’t incur penalties or interest, according to Trump’s order.
But guidance released by the IRS on Aug. 28 specifies that deferred payroll taxes must be repaid between Jan. 1, and April 30, 2021. Any tax that isn’t repaid within that window will be subject to interest and penalties. Employers could collect those penalties from their employees if necessary, according to the announcement.
Workers who see an increase to their paycheck this fall could see double the Social Security tax withheld from their paychecks at the start of 2021 in order to pay back the deferral. But due to lack of guidance as to how exactly workers will be expected to repay the deferred payroll tax, it’s expected that many employers will continue to withhold taxes as usual during the holiday.
Will You Have to Repay the Deferred Taxes?
The president has the authority to defer payroll taxes because he made a nationwide emergency declaration in March. In a state of emergency, the secretary of the Treasury may make changes to taxpayer liability.
But it’s up to Congress to decide whether or not to permanently forgive the deferred payroll taxes.
“This fake tax cut would...be a big shock to workers who thought they were getting a tax cut when it was only a delay,” said Senate Finance Committee Ranking Member Ron Wyden (D-OR) in a statement in response to Trump’s executive orders in August. “These workers would be hit with much bigger payments down the road.”
It’s likely that Trump’s move to defer payroll taxes will face some pushback, even as implementation begins.
Last month, The U.S. Chamber of Congress and more than 30 business groups signed a letter expressing frustration at the vague guidance for the payroll tax deferral and urging the White House and Congress to forgive the deferred taxes. “Under a simple deferral, employees would be stuck with a large tax bill in 2021,” the letter said. “Many of our members consider it unfair to employees to make a decision that would force a big tax bill on them next year.”
Potential Long-Term Impact of a Payroll Tax Cut
Trump has been a vocal supporter of cutting payroll taxes.
“If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” he said when he signed his executive orders on Aug. 8.
But while a payroll tax cut would increase worker paychecks, it only helps people who are currently working. The national unemployment rate stands at 10.2%, after hitting a peak of 14.7% in April.
Opponents of a payroll tax deferral say it’s not enough to buoy the American economy during a time when so many people are unemployed. While people earning paychecks would see a slight increase, it’s unlikely the amount deferred would match the amount they might receive via a one-time cash payment like the economic impact payments authorized by the CARES Act.
And it’s unclear how Trump would plan to fund Social Security without payroll taxes. “Payroll tax goes to programs that Congress has promised the American people,” Carl Tobias, a professor at the University of Richmond School of Law, said.
If payroll taxes were eliminated without a new source of funding for Social Security, the fund could be depleted by mid-2023, according to a recent letter from Stephen Goss, chief actuary for Social Security, to Senate Democrats.
The last time Americans received a payroll tax cut was 2011, when the Obama administration reduced the employee payroll tax by 2%. The unemployment rate that year, in the wake of the Great Recession, hovered in the 9% range.
"work" - Google News
August 31, 2020 at 11:34PM
https://ift.tt/3bsHafv
Trump’s Payroll Tax Holiday Starts Today: How Does It Work? - Forbes
"work" - Google News
https://ift.tt/3bUEaYA
Bagikan Berita Ini
0 Response to "Trump’s Payroll Tax Holiday Starts Today: How Does It Work? - Forbes"
Post a Comment