Given that the coronavirus crisis has been at the forefront of everyone's minds, it shouldn't come as a surprise to hear that there have been plenty of discussions surrounding the White House and Congress' stimulus relief package, which entailed a one-time check to eligible Americans to help them get through this pandemic. While many individuals haven't received their checks just yet, there has already been talk about a possible payroll tax cut in the future (which could be implemented in lieu of a second round of payments). Even though nothing is set in stone yet, you may still have a few questions regarding this possible payroll tax cut. If you do have any lingering questions, read on to find out everything there is to know about this subject.
As previously mentioned, the White House and Congress previously reached a deal regarding a $2 trillion stimulus package in late March. The package will hopefully help give a boost to the economy amidst the ongoing struggles relating to the coronavirus crisis. It entailed that eligible Americans would receive a one-time check of $1,200 (or $2,400 for couples filing a joint tax return), with individuals receiving an additional $500 for every child that they claim as a dependent. Seeing as though this plan has been implemented (with checks continuing to make their way to eligible Americans), people are already wondering what other aid the government could send out as this pandemic continues.
One of the options that the government could implement would be a payroll tax cut. But, what exactly would this entail? Here's everything you need to know about the topic.
Discussion of a payroll tax cut
Following the news in late March about the $2 trillion stimulus package, there was much discussion throughout April regarding what could come next. As the coronavirus crisis only continues to worsen within many parts of the country, some have braced the subject of a second round of stimulus (even though many Americans have still not received their original payment). However, some figures, namely President Donald Trump, have voiced their support for a possible payroll tax cut in the future.prevnext
What President Trump has said
On Tuesday, Trump was asked directly about the possibility of a second round of stimulus checks. He replied to say, "I like the idea of payroll tax cuts." His answer came weeks after he voiced his enthusiasm over the possibility of sending out more stimulus payments to Americans.prevnext
What would a payroll tax cut entail?
Everyone who receives a paycheck has paid a payroll tax. Things included on this payroll tax include Social Security and Medicare. If the government does implement a payroll tax cut, it could greatly impact funding to those programs while also providing for more money to employees and employers in the meantime.prevnext
How would it affect Medicare and Social Security?
A payroll tax cut could greatly affect Social Security and Medicare, both of which rely on payroll taxes for funding. At the moment, employees and employers pay a 6.2 percent tax for Social Security and 1.45 percent for Medicare. Self-employed individuals pay these tax contributions on their own, 12.4 percent for Social Security and 2.9 percent for Medicare. CNBC has reported that both Medicare and Social Security are facing possible funding shortfalls amidst this pandemic and a payroll tax cut wouldn't do much to help that issue.prevnext
How would it affect Americans directly?
Under a payroll tax cut, Americans who still receive a paycheck could save slightly more money as they would not have to pay those specific tax contributions. However, a payroll tax cut wouldn't do much to help individuals who have lost their jobs amidst this health crisis. Additionally, those with higher incomes could actually disproportionately benefit from this plan.prevnext
What experts are saying
Experts aren't entirely sold on the idea of a payroll tax cut. Garrett Watson, senior policy analyst for the Tax Foundation, recently told reporters that a payroll tax cut would, in particular, not have a great effect on the rising unemployment levels in the country. He also expressed that this plan wouldn't be of great help to vulnerable Americans, especially service workers.
"When you do a temporary tax cut like what the White House is proposing, the literature generally finds there isn't a big effect on employment levels," Watson said. "If you look at the 2009, 2 percentage points payroll tax cut under the Obama administration, the evidence bears out that most of that federal tax cut was saved by consumers."prevnext
What about a second round of stimulus checks?
As for a second round of stimulus checks (in lieu of a payroll tax cut), it's currently up in the air. While members of Congress have proposed a plan, the Emergency Money for the People Act, that would provide for $2,000 per month over the course of six months (or until the pandemic has subsided) to eligible Americans, it has not yet made its way through the legislative process.prev