On September 1, 2020, the Trump administration’s executive order providing the option to defer payroll taxes went into effect. This order gave employers the option to defer payroll taxes for employees who earn less than $4,000 per every two weeks or less than $104,000 per year, for the remainder of the year. Under this program, employees might temporarily see bigger paychecks as payroll taxes, which include the 6.2% Social Security tax and the 1.4% Medicare tax, otherwise known as FICA, are suspended. But beware that the taxes are not forgiven; they’re just delayed.
Employees should know that the benefits from this executive order will be short lived. As the recent IRS guidelines point out, the tax cuts and the subsequent increase in pay for employees is merely a loan that employees will be expected to pay back. Unless there is Congressional intervention to forgive the taxes, come January 2021 employees will have the payroll tax taken out twice per paycheck between January and April 2021 to repay the tax amounts deferred in 2020, and failure to do so will result in interest, penalties, and additions to tax with respect to any unpaid taxes accruing in May 2021.
The Trump administration stated that the plan was implemented to give workers economic support during the on-going coronavirus pandemic. However, critics have said that this tax plan is short-sighted since workers will be hit with an even bigger tax bill next year.
Follow LR on LinkedIn to stay up to date on the evolving regulations affecting workers.