Payroll Tax Executive Action: What does it mean?

On August 8th, the office of the White House issued a “suspension” of payroll taxes. What does this mean? Simply, it means certain individuals as well as businesses will not be required to pay the Social Security and Medicare portions of the tax withheld from their paychecks. 

Who does this apply to?  This applies to individuals who will work from September 1st to the end of this year and make less than $2,000 a week. Every paycheck previously received had 7.65% of the wages subtracted for Social Security and Medicare. This 7.65% portion will not be removed if your employer chooses to follow this executive order. In addition, your employer matches this amount withheld from your paycheck and sends that money to the federal government. The executive order also removes this liability which should provide the employer with additional capital for business needs. 

An Individual example:

If you are an individual that makes $10 per hour and you work 40 hours per week you will see an “increase in pay” by $30.60 per week. By the end of the year that would accumulate to $520.20.

A Business example:

If you are a business that has 10 employees, all who make $10 per hour and they each work a total of 40 hours per week, the business will see a decrease in expense of $306 per week. Ultimately this equates to $5,202 less in expenses by year’s end. 

 The Catch:

So, there is a slight issue with this order. This order just suspends the requirement to pay these taxes until the end of the year. The amount uncollected would still be owed when the December period was up. Congress would have to decide to wipe out the debt in order for it not to be owed. For this main reason, many employers may not risk the “balance due” at the end of December if Congress chooses not to wipe out the debt. This would put a burden also on the individual who might owe back taxes from the suspended withholding on their wages. These back taxes would likely come in the form of a balance due on your tax return. 

Please feel free to reach out to us with any questions using our email: michael@accountingpersonalized.com or 352-224-9530.