Payroll Tax Executive Order Explained

While the current administration is working to make changes to payroll taxes, it is important to note that our firm specifically does not recommend that businesses pause their Social Security withholdings, and to maintain no change to your payroll taxes at this time.

After negotiations for another stimulus bill stalled for two weeks, President Trump issued an executive order suspending the collection of Social Security payroll taxes from September 1st through December 31st, while hinting that it might go beyond that time frame too. It would impact those making less than $4,000 for any bi-weekly pay period or about $104,000 annually.

There is one very real pitfall that might come into play later, including that the deferred taxes might have to be repaid. Whether you agree or not with the executive order, your paycheck might be bigger for the rest of the year.

Social Security Taxes
As you likely know, every time you get a paycheck:

• 7.65% of your wages are subtracted from your paycheck and go to Social Security and Medicare (6.2% for Social Security and 1.45% for Medicare).

• Your employer pays the same amount of tax.
President Trump’s executive order halts the Social Security portion of your ordinary payroll taxes (6.2%).

How Much Money?
Here are a few quick examples:

• If you make $10/hour and work 40 hours/week, you will keep about $25 more per week or $446 from September 1st through December 31st.

• If you make $15/hour, you will keep about $37 more per week, or $670 from September 1st through December 31st.

• If you make $25/hour, you will keep about $62 more per week, or $1,116 from September 1st through December 31st.

Important Takeaways
If you are in line to benefit from the executive order, you need to remember that it only suspends Social Security taxes, and does make them go away forever. In order for that to happen, Congress would have to agree – and that’s a tall order.

Yes, the President has said he’s looking into the possibility of eliminating the suspended taxes if he’s elected, but wiping your tax-suspension-slate clean might not be possible. Further, there are likely to be some companies that simply decide to continue withholding so that they aren’t faced with a really large bill later on.

Simonet Financial Group, LLC
[email protected]
Phone: (512) 296-8962

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