What a Payroll Tax Holiday Could Mean for Your Wallet | theSkimm

What a Payroll Tax Holiday Could Mean for Your Wallet

Published on: Aug 31, 2020fb-roundtwitter-roundemail-round

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.

What you need to know: In order to get the break, your employer has to opt in. Experts predict many 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.

Your move: Make a plan for what to do with the extra money if your company pauses your payroll taxes. In the short-term, it’ll feel like you just got a raise. The gov hopes bigger paychecks = more to cover bills and spend at American businesses. Which can help boost the economy.

But 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.

So set aside whatever you can afford not to spend now to cover the bill next year.

theSkimm: A payroll tax holiday might be nice for your bank account. But consider any “new income” you get a loan, not a gift.

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Skimm'd by: Ivana Pino, Elizabeth Smith, and Elyse Steinhaus