As Congress continues to debate the next stimulus package, President Donald Trump made headlines by signing four executive orders on Saturday. One of these orders, a memorandum on payroll tax deferrals, has left many employers scratching their heads on how it will work—and the impact it will have on their employees.
The memorandum orders the Treasury Secretary to stop collecting the employee’s share of Social Security taxes—which is 6.2% of their income—from September 1 through December 31, 2020. Typically, companies split 12.4% for Social Security and 2.9% for Medicare—also known as payroll taxes—with their employees by withholding the employee’s share from each paycheck.
According to the order, Trump says employees won’t incur penalties or interest on the deferred Social Security taxes. This new order applies to folks making less than $104,000 per year, who may see a temporary bump in their paycheck through the end of the year.
Here’s the problem, though: While the executive order says the Treasury Secretary could explore options, including legislation, to forgive the deferred taxes, there is no guarantee it will happen. If your company follows the order, defers your share of the taxes, and Congress doesn’t forgive the balance, you could be on the hook for the money in April.
The executive order still leaves unanswered questions—particularly for employers who would have to implement these payroll tax changes. As the Wall Street Journal reports, many companies are waiting for further guidance from the Treasury Department before making any adjustments to withholdings.
G/O Media may get a commission
“Commentary from payroll processing firms indicates that it will be problematic, if not impossible, for businesses to make the changes needed to pass the extra money along,” says Mark Hamrick, senior economic analyst at Bankrate. He said companies know there could be a future tax bill—and employees may be worried about money being taken from their paychecks later.
As an employee, there isn’t much you can do now, but you can plan to start a dialogue with your employer as new payroll tax guidance unfolds. In the meantime, you can make sure your current withholding is enough.
