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The President's Payroll Tax Deferral 

09-21-20 10:25 AM By Dyad Advisors

The President's Payroll Tax Deferral may not be such a good idea

On August 8th, 2020 the President signed four executive orders related to COVID-19. One of them was a memo deferring payroll taxes.


Payroll taxes are the taxes paid by both, employers and employees, for the Social Security and Medicare national funds. The executive order signed by the President, only refers to the employee social security portion of payroll taxes, which represents 6.2% of an employee's paycheck.


Any employee who earns less than $4,000 every two weeks for these payroll tax deferral. The memo states that this tax deferral will be in effect since September 1, 2020 and until December 31, 2020. But, these taxes will have to be repaid at some point in 2021.


Why may it not be such a good idea?


Well, if you are an employee, your check may be 6.2% larger over the next four months, but you will need to repay the unpaid taxes in 2021. If we are talking at the beginning of the year, it will be in the dead of the winter, numerous people work less hours during the winter, and your paycheck will then be smaller that it has ever been because of your deferred tax deduction.


If you are an employer, and you have employees who opted-in for the payroll tax deferral but no longer work for you, you might be responsible to repay those payroll taxes.


There might be additional ramifications to taking advantage of this deferral, but at this point that is still unclear.