IRS Notice 2020-65 for the payroll tax holiday is in full effect. It will run from September 1, 2020 to December 31, 2020.
On August 28, 2020, the IRS issued Noticed 2020-65 to allow employers to wave social security tax from themselves and employees. This Notice was issued through a Memorandum from President Trump asking to have payroll taxes deferred.
The taxes are only deferred and may need to be paid back in April 2021 on your 2020 tax returns. Also, your employer may withhold additional money from your paycheck in 2021 to pay the tax back.
What Does a Payroll Tax Holiday Mean for Your Finances:
For the next 4 months you will be getting a 6.2% “raise” on your paycheck. You have to make less than $4000 per paycheck or if you are a salaried employee less than $104,000 per year.
The payroll tax holiday is coming off your social security taxes. The Social Security tax amounts to 12.4% deduction on every paycheck. The employer pays 6.2% and employee pays 6.2% in social security tax.
For example if you make $1000 every paycheck you will get $62 additional on each paycheck until the end of December. You would owe the government back about $500 on your 2020 tax returns.
Do I Have to Use the Payroll Tax Holiday?
There is information that says you do have the option to go to your HR department and OPT OUT of the tax deferral. However, there is conflicting articles that say that only the employer has the right to OPT OUT of deferring social security taxes from employees paychecks.
If your company does opt in for the payroll tax holiday, you should be seeing announcements of how your paychecks will be effected.
Will This be Forgiven?
Larry Kudlow, the Director of the United States National Economic Council, stated that, “We will take any steps necessary to forgive this deferral.”
Under Section 4 of Trump’s Payroll Tax Holiday Memorandum it gives the power to the Secretary of Treasury to look for avenues and legislation to ensure the deferral is forgiven.
However, the only way you would not have to pay this money back, is if Congress passes legislation on it. Remember Congress has control over the “purse,” not the Executive or Judicial branches.
So call your legislators to have the Payroll Tax Holiday forgiven.
How to Take Average Payroll Tax Holiday?
If you feel as if you cannot pay this back on your taxes, talk to your HR Department to see if there are options to OPT OUT of this program.
However, you can look at this as a small investment. Put the money in a high yield savings, so you can make a little interest from it. You can also put more money into your Roth IRA or open an IRA, to get additional tax advantages.
This Payroll Tax Holiday can either help Americans or hurt them. However, the time has come to begin to understand your finances and work towards debt freedom, so that you do not have to be affected during times of uncertainty.
P.S. Check out our article on Roth vs Traditional IRA to look at your investment options.
