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Payroll Tax Holiday | Payroll Tax Holiday Guidance

Payroll tax holiday details

On August 8th 2020, President Trump's issued an executive order declaring a payroll tax holiday. Employees earning less than $2,000 per week ($4,000 bi-weekly) will be eligible to defer their portion of specific payroll taxes on wages earned between September 1st, 2020 and December 31st, 2020. In essence, the deferral is an interest-free loan that would have to be repaid. President Trump mentioned that if he was re-elected, he would likely forgive the deferred taxes owed by employees.

But guidance released by the IRS on Aug. 28 specifies that deferred payroll taxes must be repaid between Jan. 1, and April 30, 2021. Taxes not repaid within that window will be subject to interest and penalties. Employers could collect those penalties from their employees if necessary, according to the announcement.

Workers who see an increase to their paycheck this fall could see double the Social Security tax withheld from their paychecks at the start of 2021 in order to pay back the deferral. But due to lack of guidance as to how exactly workers will be expected to repay the deferred payroll tax, it’s expected that many employers will continue to withhold taxes as usual during the holiday.

How much money will a payroll tax holiday save me?

Every payday, 6.2% of your wages are subtracted from your paycheck to fund Social Security. Your employer pays an equivalent amount of tax. Under Trump's executive order, these payroll taxes won't be taken out of your paycheck if your bi-weekly salary is $4,000 or less ($2,000 or less for weekly). So, for example, someone making $15 per hour and working 40 hours per week will get about $37 more per week, or slightly over $160 per month. From September through December, that will come out to about $665.

What taxes are deferred under Trump's payroll tax holiday?

President Trump's payroll tax holiday allows eligible employees to defer their portion the Social Security tax. The payroll tax holiday does not defer your federal withholding tax, nor does it defer other state and local payroll taxes.

Will you have to repay the deferred payroll tax holiday taxes?

The president has the authority to defer payroll taxes because he made a nationwide emergency declaration in March. But it’s up to Congress to decide whether or not to forgive the deferred payroll taxes. 

President Trump mentioned he would forgive the deferred taxes under the payroll tax holiday, guidance released by the IRS on Aug. 28 specifies that deferred payroll taxes must be repaid between Jan. 1, and April 30, 2021.

Who is eligible for the payroll tax holiday?

Obviously, you have to get a paycheck to benefit from a payroll tax holiday. So, if you're unemployed, retired, a stay-at-home parent, or don't have a job for some other reason, then the payroll tax holiday won't help you.

To participate in the payroll tax holiday and begin deferring taxes, you must make less that $2,000 per week ($4,000 bi-weekly). You employer must also allow you to defer the taxes as the payroll tax holiday is optional for employers.

Is the payroll tax holiday voluntary?

While the payroll tax holiday is designed to temporarily assist employees, employers are not required to participate in the payroll tax holiday. The IRS issued guidance on August 28th indicating the payroll tax holiday is voluntary to employers.

Employers not participating in the payroll tax holiday deferral should communicate their decision with their staff to avoid confusion.

Employers voluntarily participating in the payroll tax holiday must decide if they will allow employees the choice to defer their taxes, or force all employees to do so.

Employers allowing employees to defer taxes under Trump's payroll tax holiday are responsible for collecting and paying the deferred employee taxes in 2021. Failure to do so will result in fines and penalties.

Companies like PayNortheast make complying with Trumps payroll tax holiday simple.

PayNortheast keeps you up-to-date on the ever changing regulations. Simple payroll, timekeeping and HR solutions, coupled with affordable pricing, makes PayNortheast the preferred payroll and HR provider for companies of all sizes.

Interested in learning more about how PayNortheast will save you time, money, and keep you compliant? Let's Chat

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