Millions of Americans have been desperate for relief in the wake of the COVID-19 pandemic. While the coronavirus relief bill passed in March offered some help, it's been months since its stimulus checks went out. Meanwhile, unemployment is still disturbingly high and our economic recession rages on.
To provide some relief, President Trump signed an executive order calling for a payroll tax deferral from September of December of 2020 for workers earning up to $104,000 per year. During this time, 6.2% payroll tax that's normally taken out to fund Social Security won't be applied to worker paychecks (assuming their employers adopt the deferral; some companies aren't), which means you may have more take-home pay to look forward to between now and the end of the year.
But don't get too comfortable with that extra money. Your paychecks may get a lot smaller in 2021.
Image source: Getty Images.
Your payroll tax deferral is really more like a loan
If you don't earn more than $104,000, 6.2% of your salary that's normally withheld for Social Security purposes will instead be paid to you for the rest of the year. For example, if your annual salary is $60,000 and you're paid twice a month, you'll get an extra $155 per paycheck.
Sounds great, right? Not so fast.
Since the aforementioned taxes are only being deferred, not forgiven completely, you'll need to repay them in 2021. Specifically, you'll have that extra tax withheld in equal installments between Jan. 1 and April 30 of 2021. Any tax not paid back by that point will begin to accrue interest and penalties.
While your paychecks might get a short-term boost, they're going to get smaller in 2021, and you'll need to plan accordingly.
Will those deferred payroll taxes be forgiven?
Trump has pledged that if he's reelected in November, he'll aim to have all deferred payroll taxes fully are forgiven so that paychecks don't get smaller in 2021. But that's not something workers can count on, nor is it something they should necessarily want.
If those payroll taxes are indeed forgiven, it could spell serious trouble for Social Security, which relies on payroll tax revenue to stay afloat. Denying the program four months' worth of payroll taxes could result in benefit cuts in the not-so-distant future -- especially since Social Security has already lost out on a lot of payroll tax revenue this year due to high unemployment. Furthermore, it's still unclear as to whether Trump, if reelected, will have the authority to forgive four months of payroll taxes.
Thus, all workers who get a boost this year will need to gear up for a smaller paycheck at the start of the following year. You may even want to save all of the extra money you're getting in your paychecks between now and December to compensate.
Employee Confidence in Payroll and Paycheck Accuracy Remains High During Pandemic
Although millions of people are working remotely due to the pandemic, more people than ever feel that their paychecks are accurate and secure. More than 87 percent of employees are certain their paychecks are accurate, according to results from the 2020 "Getting Paid In America" survey conducted by the American Payroll Association (APA) for National Payroll Week. This is an increase of three percent from the 84 percent of respondents who responded to this question in the 2019 survey.
"More than ever, employees should have full confidence they are being paid accurately each payday," said Dan Maddux, executive director of the APA. "The hard-working payroll professionals of this country continue to ensure paychecks are delivered accurately and on time, each and every payday, no matter what."
The annual APA survey asked, "How certain are you that your payroll withholding and the net amount of your paycheck are correct each payday?" Approximately 29,162 respondents, more than 87 percent, indicated they are very certain or somewhat certain the net amount of their paycheck is correct.
The American Payroll Association offers free tools on its National Payroll Week website to educate individuals on ways they can get more out of their pay and make unemployment benefits less painful. These tools and resources can be used to better understand how paychecks are calculated and outline strategic steps individuals can use to achieve their financial goals for today and the future.
"Educating employees about the nature of their paychecks is a key part of our mission," said Elizabeth Oviedo, chief strategy officer of Symmetry Software's PaycheckCity. "For those who aren't certain their withholdings are correct each payday, PaycheckCity calculators linked from on the National Payroll Week website are valuable tools to verify their withholding and see the impact of recent tax law changes on their paychecks."
The "Getting Paid In America" survey was held in conjunction with the APA's annual public awareness campaign National Payroll Week, September 7-11. Over 35,000 individuals responded to the survey, providing insight into how individuals are paid in America. For complete survey results, visit www.nationalpayrollweek.com.
The APA is the nation's leader in payroll education, publications, and training. Visit the APA online at www.americanpayroll.org.
SOURCE American Payroll Association
