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America is still in limbo over payroll tax deferral

On Behalf of | Sep 11, 2020 | Corporate Taxes |

Taxpayers in California and across the United States have a short time window before the president’s tax order goes into effect. But reports suggest many aren’t ready for the transition.

The deferral begins Sept. 1 and runs through the end of the calendar year. However, some employers say they aren’t ready to make the deadline by that time and some workers worry what their tax bill could look like in 2021.

Uncertainty looms for payroll providers

State and federal withholdings typically reduce an employee’s take-home pay. Social Security and Medicare taxes also factor in each employer’s payroll.

This deferment may seem like a grand gesture. However, it’s left more people with questions than answers.

Some of the uncertainty surrounding this decision relate to:

  • Employee tax burdens in 2021: If workers are responsible for repayment, one might wonder if this plan intended to benefit the American labor force.
  • Who the deferment applies to: For workers to qualify for payroll tax deferment, their gross bi-weekly income must be less than $4000. Are both employers and payroll companies ready to calculate earnings differently for those at varying salary amounts?
  • The time the deferment gets implemented: Sept. 1 falls in the middle of the third quarter. As such, accounting departments will need to adapt to a new payroll tax, at least for a portion of their workforce.
  • Guidelines from tax officials: Employers are still waiting for the Internal Revenue Service (IRS) to issue clear guidelines detailing their responsibility. There may not be adequate time to put new systems in place.

Pending direction from the IRS, it’s too soon to know whether all businesses could withstand the changes required. Meanwhile, the deferral’s impact on Social Security could pose broader issues.

While disagreement over Social Security management is nothing new, there could be changes within the government come November. Regardless of association, a lack of funding towards the Social Security system could void the long-term benefits of deferment, as many Americans rely on these public benefits as they age.

Voters have their eyes on Social Security in upcoming election

Out of all the issues voters wish to address in the upcoming election, Social Security is at the top of the ticket, especially for Americans 45 and older. Right now, the current cap on payroll taxes, which fund Social Security, is $137,700. If the president defers payroll taxes for four months, it could put Americans who rely on Social Security benefits in a tough spot. That’s because, without funding, Social Security could dry up by 2023.

Some politicians have suggested increasing taxes on wealthier Americans to fund Social Security. But others say that only keeps the program on life-support for another decade.

The decisions made now could have long-term effects

The payroll tax deferral may determine what voters do in November. And hopefully, the financial situation will even out – both for business owners and those who report to them.


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