No more payroll taxes for 2020. What does this mean? Details below!
Since negotiations for another stimulus bill appear to be going nowhere, President Trump has issued a series of executive orders to help financially distressed Americans. One of the executive orders (actually an executive “memorandum”) suspends the collection of payroll taxes from September 1 until the end of the year for workers making less than $4,000 for any bi-weekly pay period (about $2,000 per week, or $104,000 per year).
Nevertheless, the president has wanted a payroll tax cut for months – and now he finally has one. As a result, if you make less than $104,000 per year, your paychecks may be a little bigger for the rest of 2020.
How Much Money Will a Payroll Tax Save You
Every payday, 7.65% of your wages are subtracted from your paycheck to fund Social Security and Medicare (6.2% for Social Security; 1.45% for Medicare). Your employer pays an equivalent amount of tax. For 2020, the Social Security tax is only levied on the first $137,700 of earnings; however, an additional 0.9% Medicare tax is collected on wages over $200,000 for the year.
Under the president’s executive order, these payroll taxes won’t be taken out of your paycheck if your bi-weekly salary is $4,000 or less. So, for example, someone making $15 per hour and working 40 hours per week will get about $46 more per week, or slightly over $185 per month. From September through December, that will come out to about $825.
Since the executive order doesn’t apply to bi-weekly wages above $4,000, the $137,700 wage base limit for Social Security taxes and the additional 0.9% Medicare tax don’t come into play.
Since the goal is to quickly get more money into the economy, critics claim that the infusion of cash into the economy would come too slowly from a payroll tax holiday. Instead, many lawmakers and experts would prefer another round of stimulus checks to get more money, more quickly into consumers’ hands.
There’s also concerned about the impact on Social Security and Medicare, which are already dealing with financial issues. Since payroll taxes fund the two programs, many people are worried about the long-term effects of diverting money away from these two social safety nets.
Treasury Secretary Steven Mnuchin, however, says that Social Security and Medicare funding won’t drop. Money will be transferred from the federal government’s general fund to the Social Security and Medicare funds to cover any payroll tax amounts not collected.
The president’s order directs the Secretary of the Treasury to “explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred,” and Trump said he would “terminate the tax” if he’s re-elected, but there’s no telling at this point if the eventual payment of the deferred taxes can ultimately be avoided.