Weeks after he signed an executive order targeting what he viewed as key aspects of economic relief amid the coronavirus pandemic, President Donald Trump‘s payroll tax cut officially goes into effect on Tuesday, Sept. 1. The tax cut, a provision that had proven controversial among lawmakers, was included in an executive memorandum Trump signed on Aug. 8 after stimulus relief bill negotiations between the White House and top Democrats collapsed. That order also included provisions targeting enhanced unemployment benefits, student loans, and evictions.
Payroll taxes include Social Security and Medicare from employees, as well as from employers. A payroll tax cut, therefore, would reduce the amount taken out of workers’ paychecks to fund those federal programs. Currently, workers pay about 7.65% of their wage and salary incomes, with employers matching the amount.
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Under the president’s order, the payroll tax cut, which will last from Sept. 1 until Thursday, Dec. 31, will allow employers to defer employees’ payroll taxes. This tax cut applies to those individual employees who earn less than $4,000, before taxes, during any bi-weekly paycheck period, according to Forbes, and employees will not be financially responsible for any penalties or late fees assessed on the amount of the payroll tax that is deferred. Currently, this “cut” is only a deferral, meaning employers will be responsible to pay the deferred payroll tax between January 1, 2021, and April 30, 2021, though Trump has directed Treasury Secretary Steven Mnuchin to explore ways to forgive these taxes permanently.
Now that the order is in effect, though, employees can expect to see some changes to their paycheck. Those who qualify for the payroll tax cut may see a paycheck that is higher than normal through the remainder of the year due to the tax not being deducted. However, during the first four months of 2021, your paycheck may be lower than usual, as employers will deduct the payroll tax in the normal course beginning Jan. 1, 2021. Forbes notes that due to the fact that you could be paying double payroll tax beginning in the new year, you may want to “save your incremental cash over the next four months and use it during the first four months of 2021 to cover any cash shortfall.”
The payroll tax cut has faced criticism from many lawmakers, some claiming that it is an overreach of executive power and an attempt to defund Medicare and Social Security. Some have argued that it does not provide the relief Americans need during the coronavirus crisis, as it will not aid unemployed Americans. Trump, however, had previously touted such a tax cut as “very important.”
