Payroll Tax Deferment...What it means for you!
Updated: Sep 8, 2020
With companies cutting salaries at an alarming rate in response to the COVID-19 crisis, most American workers are looking for a way to find extra money in their budgets to cover their ordinary monthly expenses. Thanks to a recent executive memorandum, however, Americans just
may find the relief they are looking for.
On August 8, the president signed a memorandum to the Secretary of the Treasury that will defer payroll tax obligations for millions of Americans in an attempt to ease the financial burden that they are facing as a result of the novel coronavirus. Unfortunately, executive actions are not always easy reading. Read the FAQ below to find out important information about the new measure, including whether you will qualify and whether the deferred money will need to be paid back.
What Is It?
The directive from the president is a memorandum to the Secretary of the Treasury ordering the secretary to defer the withholding, deposit and payment of federal payroll taxes that are ordinarily imposed on wages and compensation.
When Does the Tax Deferment Start, and How Long Will It Last?
The ordered deferment will be applied to all eligible wages paid between September 1, 2020 and December 31, 2020. The money deferred under the directive will not be subject to any penalties, interest, additional amounts, or additions to the tax.
Who Is Eligible?
Anyone who makes less than $104,000 per year in pre-tax wages is eligible for the deferral.
Will I Have To Pay the Money Back?
This is the million dollar question, and unfortunately the president's memorandum does not provide a clear answer. According to the document, "The Secretary of the Treasury shall explore avenues, including legislation to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum." That's Washington speak for "we want to forgive the obligation entirely, but there is no guarantee."
Unfortunately, the language of the memorandum does not commit to letting Americans keep the money that is deferred under the order indefinitely. If no law is passed and no other legal mechanism is put in place to make the deferral permanent, Americans who benefit from the directive could end up on the hook for the deferred taxes during the 2021 tax season.
Reading official government documents can be intimidating. Hopefully this FAQ will make the president's recent payroll tax deferral memo a little bit easier to understand. Armed with this information, you can begin to plan for the additional money that you will be receiving, how you will spend it, and how to pay it back if necessary. If you still have questions, be sure to talk to an accountant or other financial professional to ensure that you fully understand all of your obligations. While this FAQ tells you everything you need to know about the president's memorandum, only a professional can assess your individual financial situation.