I am sure a lot of us have questions about the Payroll Tax cut President Trump signed into executive order….. and How much will it save you?

One of the executive orders (actually an executive “memorandum”) suspends the collection of Social Security payroll taxes from September 1st until the end of the year for workers making less than $4,000 for any bi-weekly pay period (that’s $2,000 per week or $104,000 per year).

As a result, if you make less than $104,000 per year, your paychecks could be a little bigger for the rest of 2020. But think twice before spending the extra money – you might have to pay it back next year.

Every payday, 7.65% of your wages are subtracted from your paycheck to fund Social Security and Medicare (6.2% for Social Security; 1.45% for Medicare). Your employer pays an equivalent amount of tax (although employers already can defer payment of their share of Social Security taxes on wages paid through the end of the year). For 2020, the Social Security tax is only levied on the first $137,700 of earnings; however, an additional 0.9% Medicare tax is collected on wages over $200,000 for the year.

Under the president’s executive order, your share of Social Security taxes (6.2%) won’t be taken out of your paycheck if your pre-tax bi-weekly salary is $4,000 or less. So, for example, someone making $10 per hour and working 40 hours per week will get about $25 more per week or around $100 per month. From September through December, that will add up to about $446. A full-time worker making $15 per hour would get approximately $37 more per week, $149 more per month, and $670 by the end of the year. For someone making $25 per hour, the savings will be about $62 per week, $248 per month, and $1,116 through December.

Since the executive order doesn’t apply to bi-weekly wages above $4,000, the maximum tax deferral is $124 per week, which would add up to $2,232 from September 1 to December 31. (That’s based on 40 hours per week at $50 per hour.) The $4,000 cap also means that the $137,700 wage base limit for Social Security taxes doesn’t come into play. What should you do if your employer actually stops withholding Social Security taxes from your paycheck? You may want to put that money aside until we know whether the deferred taxes will have to be repaid. If they’re not forgiven by Congress, you’ll likely have to pay it back next year

.If you have more questions about this Payroll Tax Cut or any questions about taxes for personal or business, Call us or come and visit us! From all of us here at Red Rock Tax & Consulting; Stay safe Stay healthy and remember…

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