In early August, President Trump signed a few executive orders to help people who are struggling financially. Including one that says Americans earning less than about $100K can defer some payroll taxes – the 6.2% of their paycheck the gov collects to fund Social Security – from September 1 through the end of 2020. On August 28, the gov released new guidelines for how things will work.
Here’s what a payroll tax holiday could mean for your wallet.
It might feel like you just got a raise. At least that’s the idea. Bigger paychecks = more money you could use to cover bills and spend at American businesses. Which can help boost the economy. But there’s a catch: your employer has to say okay. Experts predict many companies will say ‘count us out’ to avoid the extra homework required to temporarily change payroll processes. And because they’d ultimately be on the hook for back-payments.
It could feel like a pay cut later. Turns out, this isn’t ‘goodbye’ to your tax bill, it’s ‘see you later.’ Because while the president can pause tax payments, only Congress has the power to make your bill go away forever. Meaning – unless Congress steps in – you’ll have to pay back any deferred taxes by April 30, 2021. Which could be painful when you’re already paying regular payroll taxes.
theSkimm: A payroll tax holiday might be nice for your bank account now. But consider any “new income” you get this fall a loan, not a gift. And set aside whatever you can afford not to spend in the short term for next year.
Skimm'd by: Ivana Pino, Elizabeth Smith, and Elyse Steinhaus