Tax Related

Trump Signs Order on Payroll Tax But Watch Nasty Surprise or Pay Up

Happy Couple Tablet
Written by Steve Rhode

President Trump just signed a new executive order, “Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.”

For those unemployed and receiving benefits, it doesn’t mean much. For people that are employed an impression people may come away with is taxes withheld will be waived.

The executive order says the halt to the deduction of payroll taxes, including income tax, medicare (maybe), and social security is necessary.

The executive order says, “American workers have been particularly hard hit by this ongoing disaster. While the Department of the Treasury has already undertaken historic efforts to alleviate the hardships of our citizens, it is clear that further temporary relief is necessary to support working Americans during these challenging times. To that end, today I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.” – Source

The most important word in that White House statement is defer.

According to the executive order, payroll taxes will not be withheld from September 1, 2020, through December 31, 2020.

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Watch Out for the Payroll Tax Deferment Trap

That word defer is so incredibly important because while payroll taxes may not be withheld from your paycheck, that does not mean you won’t owe them. It puts more money in your check from your employer today but the big bill may come due at tax time.

The language of the executive order is a bit vague as well. It says it applies to “any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.” It will have to be determined what exactly generally means.

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And while the taxes not deducted from your paycheck will not be subject to “any penalties, interest, additional amount, or addition to the tax,” you will still owe them.

Payroll Tax Forgiveness

According to the executive order, it is hoped that the taxes dues may be forgiven, but absolutely don’t count on that. The order says, “The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.” Explore does not mean will be.

Cautious Enthusiasm

An example of the amount of tax this will put back in your paycheck is that someone making $500 a week will have $31 more in their paycheck but will owe $527 at year-end.

I fully admit I’m not a fan of tax surprises and owing taxes later. That personal foible may cloud my opinion but if I had a choice of saying no thanks to a payroll tax holiday for three months, I sure would.

Why kick the can down the road if the taxes will be due anyway if they are not forgiven by some undefined and undetermined later process.




About the author

Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

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