Companies can stop collecting employees’ payroll taxes starting Tuesday, September 1, after an executive order in early August gave workers a tax holiday.
The deferral of payroll taxes applies to employees making less than $104,000 a year. Employees are taxed 6.2 percent that goes toward the Social Security Trust Fund and another 1.45 percent for Medicare.
It’s a deferral because the payroll taxes are still due to the IRS by April 30, 2021, which they made clear in new guidance released last week with the US Treasury Department.
What this means to employees: It depends on your employer. Starting September 1, employers can stop withholding taxes, but many business leaders have said they will not since the taxes will eventually be due. The decision is up to each company and is not required.
If a company stops withholding payroll taxes, employees will have more money in their paychecks through the end of the year. Then on January 1, companies will need to withhold more from paychecks to collect all that is owed in April 2021.
For employees making $30,000 a year, the elimination of Social Security taxes would resultin an extra $71 per paycheck every two weeks. Assuming the employee has eight paychecks left in 2020, that would result in $572 in taxes deferred in 2020, which would be repaid in 2021. For employees making $60,000 per year, those figures would be doubled.
If an employee leaves their job before all of the appropriate taxes are collected, the guidance only states that companies can "make arrangements to otherwise collect the total applicable taxes from the employee."
President Trump has stated he would “terminate” the tax if he was elected in November. However, the president does not have the ability to do that on his own. Abolishing payroll taxes requires an act of Congress.