Payroll tax suspension will be effective starting from September 1st after President Trump’s executive order to lift off Social Security tax from payroll taxes.
While we know when the payroll tax suspension is going to begin, when it will continue to be collected is unknown. It is expected that the payroll tax suspension will continue until the end of the year.
Trump announced the payroll tax suspension on August 8 by saying “To that end, today I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.”
Income Taxes and Medicare
The payroll tax suspension only applies to Social Security tax which is 6.2% for employees and employers, each. The payroll tax suspension is only for individuals who earn less than $104,000 though which makes up more than nine in ten Americans. If your net earnings are more than $104,000, your employer will withhold Social Security tax from your income.
Considering the financial impact the coronavirus had on the millions of Americans, the payroll tax suspension is a good approach to allowing more cash flow into households.
Your next paycheck right after September 1st will be 6.2% more than usual. The rest of the payroll taxes such as income taxes and Medicare tax will continue to be withheld though.
We know the payroll tax suspension is for a limited time but it raises some questions for the future. Trump stated that if he wins the elections, there will be permanent cuts to the payroll taxes. Given the total cost of Social Security alone is over $1 trillion, the federal government will need to make additional ways to fund it.
As soon as more details emerge about the payroll tax suspension we will keep you updated.