The year 2020 has been quite a rollercoaster for most individuals. COVID-19 struck abruptly. The long-term effects of the nationwide shutdown continue to have a lasting impact on millions of working-class Americans.
From March 1st to July 25th, around 60,000 small businesses have closed their doors for good. Because of this, the unemployment rates have skyrocketed to numbers we have not experienced since the Great Depression. It became clear that some form of economic relief would be necessary. With Washington DC gridlocked on policy, and in advance of the upcoming elections, President Trump implemented an executive order.
How will this affect my paycheck?
If you make over $4,000 ($104,000 annual) in pre-tax income on a biweekly basis, this policy will not affect you.
If you fall below that income level, you will see a reduction in total tax obligations of 6.2%, the Social Security portion of your payroll tax.
From September 1st, 2020 through December 31st, 2020, you can expect to see a 6.2% increase in income. It is important to note that the order, as it currently stands, is solely a deferment of taxes and not an actual tax cut. A tax cut can not be fully implemented without Congressional approval. When the order comes to an end on December 31st, if no further legislation has passed to grant complete forgiveness, the payroll tax will increase to 12.4% through April 2021.
What happens to Social Security in the meantime?
According to comments from the United States Treasury Secretary Steven Mnuchin, virtually nothing. Mnuchin has commented that funds will be transferred from the federal government’s general fund to the Social Security trust fund in order to offset current payroll taxes not being collected during this period.
What if I choose to not participate?
While this program intends to provide economic relief, there are unknown variables that may be cause for concern. Namely, working-class Americans may not want to be on the hook for repaying the deferred taxes when the order expires. According to an IRS statement, private employers may make arrangements with their employees to continue withholding the taxes at their current rate. Federal government employees and enlisted military servicemembers will have no way in which to opt-out.
It is essential to plan for your personal financial future. If you have any questions about how you may be affected, please reach out to us directly at https://fitrusts.com/contact-us/.
For more information on the executive order, please visit: https://www.whitehouse.gov/presidential-actions/memorandumdeferring-payroll-tax-obligations-light-ongoing-covid-19-disaster/
Dakota Warnken, CRPC | Financial Fitness Consultant
D: (913) 320-2088