On a similar note...
On a similar note...
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An executive action President Trump issued Saturday on the deferral of payroll taxes could put more money in your pocket soon. Much is still unknown about how the order will be implemented, but experts say to keep a few things in mind before making plans for that extra cash.
1. It’s temporary
Many employees have a 6.2% Social Security tax withheld from their paychecks and remitted to the IRS on their behalf by their employer. “The executive order defers the withholding, deposit and payment of the tax,” says Matthew Keefer, a certified public accountant at Gorfine, Schiller & Gardyn in Owings Mills, Maryland. The deferral period runs from Sept. 1 through Dec. 31.
2. You may not qualify
The deferral is available only to employees whose pretax wages or compensation is generally less than $4,000 biweekly, which works out to around $100,000 a year. And currently it doesn’t apply to people who are self-employed, notes Pete Isberg, vice president of government relations at human resources services firm ADP.
3. The taxes are due eventually
“This is a deferral of taxes, not a forgiveness of taxes,” says Michael Graetz, a tax law professor at Columbia University Law School in New York and co-author of The Wolf at the Door: The Menace of Economic Insecurity and How to Fight It. “So at the end of the deferral period, all of those taxes will be owed unless Congress changes the law to say that they're forgiven.”
4. Consider setting the extra money aside for now
If your employer stops withholding and you see a boost in your pay because of it, you might want to hang on to that cash for now, Keefer says. “Unless legislation is passed, the deferred tax from the executive order will be repaid in the future,” he says. Another option, Isberg adds, is to tell your employer to withhold additional money by filling out a new form W-4 at work.
Of course, not all households can afford to set money aside these days. Still, if you need the money from this tax deferral now, don't lose sight of the fact it could mean a tax bill later.
5. Some employers may just keep withholding the tax anyway
It can take time for employers to revamp payroll systems, especially if they’re not using a payroll processing company, according to Isberg. Also, employers can be liable for employment taxes, even if they don’t withhold them, he says. “Employers know that, and they're going to realize that, ‘Look, if I do this, could the IRS come back to me in January and just assess the full amount that should have been withheld?’ Well, technically they can,” Isberg explains.
Most employers won’t want to ask their employees to repay four months of taxes, Graetz adds. “This turns out to be a very complicated problem,” he says.