FORT WAYNE, Ind. (WANE) – President Donald Trump is giving employers the opportunity to defer some payroll taxes in an effort to boost the economy amid the covid-19 pandemic.
However, there are a lot of questions surrounding what that could mean for both employers and employees in the long run.
The executive order gives employers the option to temporarily defer workers payments to social security taxes. Only those workers whose income is less $4,000 every two weeks or $2,000 weekly are eligible.
That means someone $50,000 salary could take home an extra $119 on their paycheck every two weeks between now and December 31. That’s only if your employer decides to opt in.
John Kessler, a Senior Lecturer in Purdue Fort Wayne’s Department of Economics and Finance, said people need to be aware that this is a deferral not a forgiveness. That means you’ll need to pay the money back between January and April of 2021.
“You really just have to know if this temporary increase in pay will be beneficial for you in the short run to help you make ends meet and pay the bills,” he said. “But knowing that you may end up having to pay double the taxes if congress is not able to work out a deal to forgive it.”
President Barack Obama issued a temporary 2 percent tax cut after the financial crisis of 2008, Kessler said. However, that tax cut was forgiven. Workers were not required to pay it back.
It is unclear how many employers plan to participate in the payroll tax deferral. Kessler said many have opted out because there some confusion surrounding the process with little guidance from the IRS. Other companies are checking with employees to see if they believe they would benefity from the program.
“Many of them are looking to the employees themselves and saying, hey do you want to do this?” he said.
If your company decides to enroll in the payroll tax deferral but you don’t want to pay back double in taxes next year there are options. Greg Reynolds of Reynolds Wealth Management said you should talk with Human Resources or the Payroll department immediately.
“The company may make a blanket decision that they’re going to do that,” said Reynolds. “But the counter response for an individual who didn’t want to be in that position certainly could be to go to payroll and have additional with holdings put back on their check.”
Both Reynolds and Kessler caution employees to take a good look at their financial situation to decide if this works for them. They warn that the boost in the economy this year will likely be short-lived with workers having to pay double on taxes at the beginning of next.
“If they could agree ahead of time that this was going to be a holiday for the next few months and you don’t have to pay it back more people would benefit and more people would take advantage of it,” said Kessler. “But they’re not saying that so right now. Not knowing if you’re going to have to pay it back means that a lot of people are not going to participate and it’s going to have very little impact on the economy.”