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A payroll tax suspension could come with legal gray area

To curb economic disruption caused by the pandemic, The White House is pitching an executive order to ease tax liabilities on workers and businesses by giving them a “tax holiday.” The holiday would halt the collection of payroll taxes, temporarily putting more money in employers and employees pockets through the end of the year. This is all part of an effort to boost the American economy.

While the offer seems generous and convenient at face value, it comes with a few legal hurdles.

Do employers have to pay the money back?

In the executive order signed on August 8, the language states that the president is only suspending payroll taxes, not cutting them. Thus, employers and employees would have to pay that money back in 2021. If the suspension gets implemented, it will ultimately require employers to make some unorthodox accounting moves. Employees could also end up with a hefty tax bill, unless Congress decides to forgive those debts.

How do businesses feel about this?

There seems to be mixed reception. While some are on board, many others are wary and uncertain of the suspension’s effectiveness. According to an economist from J.P. Morgan, the tax holiday acts more like a zero-interest loan than a form of financial relief. Because of this, many businesses want to know how Congress plans to handle it before they get behind the measure.

Other business owners are exploring alternative options. For instance, some want to continue withholding payroll taxes and give any extra payments to their workers later. However, some have criticized this move as contradictory, saying it doesn’t provide workers immediate relief.

The outcome of these measures remains uncertain

If you’re a business owner or employer confused about what to do next, you’re not alone. A lot is up in the air right now. And the fact that the government isn’t providing any clear instructions can be frustrating. If you have any more looming concerns, a knowledgeable tax law attorney can give appropriate guidance.

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