Americans have been waiting months for Congress to approve a second coronavirus stimulus check, but the chances of that happening are slim as Republicans recently proposed a “skinny” relief bill without another check (a proposal that was blocked in the Senate). President Trump took action on his own recently amid stalled negotiations by signing a Executive Decree allowing employers to defer the collection of payroll taxes between September 1 and December 31, 2020 for employees earning less than $104,000 per year.
Employees normally pay a 6.2% payroll tax on earnings up to $137,700 in 2020 to fund Social Security. Thanks to the presidential decree, those whose employers refuse to collect the tax over the next few months will see their wages increase a little. But a payroll tax deferral is not the same as a payroll tax cut. And while Trump has promised unpaid taxes could eventually be forgiven if he’s re-elected, it’s unclear whether Congress would agree (especially as Democrats are likely to retain control of the House). representatives) or if he could find another authority to do so. .
Since there’s a good chance the payroll tax waiver won’t happen, it’s important to realize that the bill could come due (and sooner than you think) for the president’s stimulus package.
Your paychecks could be smaller next year due to Trump’s coronavirus relief
Workers who see bigger paychecks this year because their employers stop withholding payroll taxes will be in for a nasty surprise on January 1.
Indeed, any employer who fails to withhold payroll taxes over the next few months could be necessary to collect the amount of unpaid tax between January 1 and April 30, 2021. And if any taxes remain unpaid after the April 30 deadline, interest and penalties will begin to accrue immediately on May 1, 2021.
This could be a major financial shock for workers, as two things will happen from January:
- Trump’s payroll tax deferral will end and your employer will resume collecting the 6.2% you would normally pay into Social Security
- Your employer will probably have to start collecting the extra 6.2% that you didn’t pay between September 1 and December 31 of this year.
So you’re looking at paychecks that decline by a combined 12.4% from the first of the year, compared to the last paycheck you received in December. And while you’re only paying taxes owed anyway, it can still look like a big drop in household income if you’ve gotten used to bigger paychecks in the previous four months. Suddenly seeing small checks never does any good, especially during a recession when every dollar counts.
Of course, Trump’s executive order does not to require employers to defer collection of payroll taxes, so your company may simply withdraw. If that happens, you won’t benefit from the coronavirus stimulus now since your checks won’t be bigger – but you won’t have to pay the piper later and face double payroll deductions.
If your employer has not stopped withholding payroll taxes, you don’t have to do anything. But if you find your paychecks are higher now because your employer isn’t collecting the 6.2%, the smartest thing you can do is put the extra money in the bank. You’ll need it next year when your checks dwindle, unless Trump wins reelection and finds a way to persuade Congress to cancel the taxes owed.