President Donald Trump's payroll tax cuts start today, meaning that some American's paychecks may be larger for the next three months, and then smaller in 2021. Trump passed an executive order to suspend payroll taxes from Sept. 1 to Dec. 1, 2020, but it is only a deferral, meaning those taxes will still be due later on. Employers may opt-out of this program, leaving your paycheck unchanged.
Trump's payroll tax cut was included in one of his previous executive orders as the U.S. Congress remains in a stalemate over the next stimulus check package. The idea is to suspend the federal tax that employees usually pay to cover Social Security — 6.2 percent. However, according to a report by CNBC, the government's guidance to employers orders them to handle collecting and repaying this deferral, meaning that if you get the tax break now, you will have to pay it back next year. The taxes must be paid back between January and April of 2021.
The deferral would put an extra 6.2 percent of most American workers' paycheck into their pockets right now, though some argue that it would be hard to utilize knowing it would come out later. With the repayment time coming up so soon and due so quickly, many companies are reportedly skipping this program.
Even if your employer is offering this deferral, individual employees can reportedly still opt out of it if they wish. This can typically be discussed with the human resources person at any business.
If your employer does offer this tax break and you decide to take it, experts say you should be wary of spending those funds too freely. You may need those savings early next year since the repayment period is no longer than the tax cut period. This means that a paycheck could be lowered in January as much as it is boosted now.
The program has some limitations as well. It is only available to employees who earn $4,000 or less per bi-weekly pay period before taxes. Payroll taxes are only applicable to a certain level of income in the first place — the 6.2 percent is only deducted from the first 137,700 that people make.
These complications are why many critics opposed Trump's payroll tax cuts, and why they argued that they could not replace stimulus programs passed by Congress. However, the Senate and the House remain at a stalemate over the price of the next stimulus package, as well as the disbursement of that money. The Senate will be back in session on Tuesday, Sept. 8.