Payroll Taxes

Trump recently signed an executive order which includes payroll taxes. He is wanting to stop payroll taxes from being deducted from your paycheck effective Sept 1 to bring relief to the American people. The problem with this is that he is not forgiving these taxes, you will still owe this money, he is just delaying the tax. As someone who works with clients who are struggling to manage their money, I see this as a huge burden to the American people.

What are Federal Payroll Taxes?

Federal payroll taxes are collected by federal authorities and are deducted on an employee's pay stub. Federal payroll taxes cover Social Security and Medicare contributions. 

How much will I get from the payroll cut?

The executive order applies only to the 6.2% Social Security obligation. Based off a salary of $50,000, you would receive about $258 per month during the Sept 1 thru Dec 31 period. 

When is this owed?

If these taxes are not forgiven by the federal government, individuals will be responsible paying them back next year during the tax season. 

What happens if I do not have the money come tax season?

If your payroll taxes were not deducted from Sept 1 thru Dec 31, and the federal government has not forgiven the deferred payroll tax cut, you will owe this money. I believe the ones that will be hurt the most are the individuals who usually receives a tax refund but their refund is much smaller or they even owe taxes. If you spent all your money and came unprepared to pay back this deferred payroll tax you will have to then set up a payment plan with the IRS, which could include additional fees, interest or penalties. If you then default on your payment plan, the IRS could put a lien against you, freeze your accounts and collect what is owed. 

Why I think this is a terrible idea.

The American people are broke and unemployment is at an all time high. If people do not have the money now, they will not have the money come tax season. At this point Mnuchin has suggested that the payroll tax deferral will be up to employers and that they cannot force anyone to participate. If this is true, I highly suggest anyone to not participate. If you do choose to participate, be sure you have this money ready come tax season.

Who could benefit from this?

Individuals who are smart with money will be able to take advantage of this. I am sure many people will invest this money right away to try to create more income and will later pay this back on their taxes easily. Investing doesn't always mean returns but you could even invest this in your 401K and save up the money later to pay back your taxes in the spring. 

Why should we keep payroll tax?

As I mentioned before, payroll taxes supplement the social security and Medicare. I know a lot of people in my life that rely on both of these things right now. I know that a lot of people my age will be relying on social insecurity later because they do not contribute currently to their retirement. 54 million Americans depend on social security, that is 1 out of 6 people. While this will not effect the current social security we have, it could effect future social security if we stop payroll taxes completely.

In summary, I do not plan to ever rely on social insecurity and I don't think anyone else should either. I believe the majority of Americans should not take this offer if it is not going to be forgiven. If you do, just be sure you have the money come April 15th.

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