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Does Trump’s payroll tax deferral mean save now, pay later?

Kimberly Adams Aug 31, 2020
Heard on: Marketplace
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Treasury Secretary Steven Mnuchin speaks as President Donald Trump looks on during a press conference. The Treasury Department Friday released guidance on the payroll tax deferral. Drew Angerer/Getty Images
COVID-19

Does Trump’s payroll tax deferral mean save now, pay later?

Kimberly Adams Aug 31, 2020
Treasury Secretary Steven Mnuchin speaks as President Donald Trump looks on during a press conference. The Treasury Department Friday released guidance on the payroll tax deferral. Drew Angerer/Getty Images
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The Department of the Treasury and the IRS issued guidance Friday for how to implement that payroll tax deferral President Donald Trump announced earlier this month.

A payroll tax deferral means nothing for the tens of millions of people out of work because they have no paycheck and therefore no payroll tax to be deferred.

Also, this deferral is supposed to kick in Sept. 1, which is going to be a challenge, to put it nicely, for the businesses and payroll processors that got this news Friday.

The “deferral” part of the payroll tax deferral means this may not be quite the tax break many folks were hoping for.

The president’s move doesn’t so much change what people pay in taxes —just when they pay it. So workers might get a small pay bump for a few months.

But, said Janet Holtzblatt at the Tax Policy Center, come Jan. 1, “they should know that the money is going to start being repaid around a time that the Christmas bills also come due.” That will be in addition to payroll taxes that restart then.

That is giving businesses some pause before getting on board.

“I think it’s very difficult for widespread adoption, absent Congress and acting to provide greater clarity and to forgive the deferred taxes,”said Neil Bradley, chief policy officer at the U.S Chamber of Commerce.

A lot is still unclear about this policy, he said, like what happens if someone changes jobs during the deferral period or is laid off.

“How do you reconcile between employers? You have substantial record-keeping issues,” Bradley said.

All this leaves business owners in a bit of a bind.

Davis Senseman, a lawyer in Minnesota, has been getting a lot of questions from small business owners.

“A lot of them are saying, ‘if I don’t do this, like, how do I talk to my employees about it, so they don’t think that somehow they’re, you know, getting ripped off?” Senseman said.

And as far as Senseman’s business, “I pay myself as an employee … I use a payroll service, and I am not going to change anything.”

The payroll tax deferral technically kicks in Tuesday, but it will probably take any businesses that do participate at least a couple of weeks to get their systems up to speed.

COVID-19 Economy FAQs

What are the details of President Joe Biden’s coronavirus relief plan?

The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.

What kind of help can small businesses get right now?

A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.

What does the hiring situation in the U.S. look like as we enter the new year?

New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.

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