Payroll Tax Holiday: How Much Will You Get and Must You Pay It Back

• Author: Mary Singleton
• Posted: 2024-07-03

Congress is still at an impasse with the fundamentals of the next stimulus package. Republican lawmakers only want to spend close to $1 trillion, while the Democrats would like a package closer to $2 trillion in aid for the American people. Lawmakers were concerned about the damages that could be done to Social Security if the payroll tax holiday were extended by the President.

However, you won't be stuck in the middle. The President came up with an interim plan until lawmakers resolve the congressional impasse.

The President used executive actions with memoranda to pass the unemployment boost, the payroll tax holiday, and the partial eviction moratorium. The payroll tax holiday, which was opposed by both parties of Congress, is precisely a stimulus boost for employed Americans. At the current time, over 38 million Americans are unemployed.
 

The Legalities of the Payroll Tax Holiday

Many people are wondering about the President's payroll tax holiday. While it may be quite questionable, it is legal, according to Jacoby.

Human resources at various companies might disagree with this new policy because of logistical concerns. Besides, so far, there has been little opposition in terms of filed lawsuits.
 

Paying Back the Deferred Payroll Tax

Treasury Secretary, Steven Mnuchin, has not completed the specifics for the payroll tax holiday. One suggestion is that the tax cut would be incorporated when you paid your 2020 income taxes in 2021.

According to Samantha Jacoby, the legal tax analyst for the Center on Budget and Policy Priorities, employers must get the money, through one avenue or another. "They might take the entire deferred tax from one paycheck at the end of the year, for example, which would likely surprise a lot of people who think they got a tax cut."
 

Do I Have to Pay the Payroll Tax Holiday Back?

The President's lawyers wrote the memo to refer to the payroll tax holiday as a deferral; it is not a forgiveness of tax. Upon the re-election of the current President, the payroll tax will be forgiven. If not, the treasury secretary will have the option to forgive the tax.

People are concerned that this will hurt the stability of the Social Security fund. The funds collected from the current workers go to pay Social Security recipients and retirees. The President mentioned that Americans would not have to be concerned with the Social Security trust fund. The delayed Social Security collections will come from the general fund.
 

Guidelines for Employers

The Treasury Department must give employers guidance on what to do with the payroll tax if the current President is not re-elected. The policy analyst at the Tax Foundation, Garrett Wilson, said that employers might face uncertainty on what is legally required according to state laws.

For example, should employers go ahead and deduct the tax from their employees' paychecks so that they can have a little extra in take-home pay? Or should they deduct the tax like usual, since there is no guarantee that the Social Security, Medicare payroll tax may or may not be forgiven? There are no easy answers.

Some states, like California, already have statutes about what is permissible for income tax withdrawal. Employers must give their employees proper wages. Furthermore, other states have entirely different rules. Things could get quite messy, for example, if an employee changes employers from September 1, 2020, to the end of the year.
 

Will I Actually Get the Money?

Now, that is the big catch. Whether or not you take home a larger paycheck is not guaranteed. Employers can decide to give you the money or continue to deduct the funds from your paycheck for payment to the federal government next year.

The payroll tax holiday will last four months - beginning September 1 until December 31. Every American employee who makes less than $100,000 per year is eligible for the payroll tax holiday, per the executive order. It is not entirely known how the payroll tax holiday will affect the self-employed.

You will not have to pay the 6.2% Social Security tax per paycheck. As an illustration, if your take-home pay were $1,000 bi-weekly, it would now be $1,062 every two weeks. Your employer would also get a tax break; employers would not have pay their portion of the additional 6.2% Social Security, Medicare tax for a total of 12.4% tax exemption.
 

Past Payroll Tax Holidays

Former President Bush approved a 2% Social Security tax holiday as a method of stimulating the economy in 2011 and 2012. This resulted in a $10 billion loss to the Social Security trust fund per month. For the new payroll tax holiday, employers may be looking at a huge tax bill in 2021, or they may be forced to hold employees' funds in an escrow account. Ultimately, the next President will decide on the future of the payroll tax holiday.