Not even the most specialists in fiscal matters are clear about the scope of the measure established under executive order
Workers participating in the tax-deferred program (payroll tax) that President Donald Trump signed by executive order will have more money left in your check from the first fortnight of this month.
According to the guidelines to implement the plan, the cut applies from September 1 and runs until December 31, 2020.
The adjustment that temporarily reduces the contribution that employees make to Social Security applies to those who earn less than $ 4,000 every two weeks.
“The deferral of Social Security tax for employees may apply to taxable wage payments less than $ 4,000 during a biweekly period, with each pay period considered separately. There is no deferral available for any payment to an employee of taxable wages of $ 4,000 or more for a biweekly pay period, ”the statement from the Internal Revenue Service (IRS), entity in charge of putting the order into operation.
One of the main criticisms of the president’s move is that the extra money employees will receive in the following months will have to be replenished in the next tax season.
Not only that, but companies must pay the tax debt between January 1 and April 30, since interest and penalties apply from May 1.
“The big problem and surprise is that employers are going to be fully responsible for all repayments, so they are going to have full responsibility for withholding deferrals,” said Pete Isberg, vice president of government affairs for ADP.
“Employees are going to see a reduction in net pay in 2021 which is practically the same as the increase they will enjoy in the next few months if they take that cut,” Isberg added. That is why the expert insisted that it is not a tax forgiveness, but a postponement of payments.
The only way in which this measure would be made permanent would be through the intervention of the federal Congress, which is not expected to happen.
Another question with the change is related to seasonal employees or those who do not work full time.
“There are some situations due to job changes and seasonal employees who work until December,” said the specialist.
On this subject, Seth Hanlon, an expert in tax policy of the Center for American Progress.
“One of the things the guidelines don’t address is how employers should recoup the tax next year from the many workers with irregular pay or hours, from those who get a pay raise or cut, or from those who are laid off. It’s not as simple as keeping twice as much next year, ”shared Hanlon.
“An affected taxpayer (read, the employer) must withhold and pay the total required taxes that it deferred pursuant to this notice between January 1, 2021 and April 30, 2021 or additional interest, penalties and taxes will begin to accrue from May 1, 2021 with respect to applicable unpaid taxes. If necessary, the taxpayer can arrange to collect applicable taxes from the employee ”, This is what the IRS guide indicates that it does not quite clarify all doubts, even from experts like those mentioned.
The suspension is one of four executive orders signed by the president on August 8, before the deadlock in negotiations between Republicans and Democrats for a new economic stimulus package due to coronavirus.
The issue of the temporary exemption from payroll tax has been colored by complaints about the impact of the cut in Social Security, since these funds go directly to financing the program as well as Medicare. Specifically, Trump temporarily suspended the 6.2% withholding that finances Social Security.