What a Trump payroll tax deferral would actually mean for your wallet
The maximum benefit that Americans could see during that four-month period is about $2,149
President Trump on Saturday signed four executive actions as an attempt to sidestep Congress – deadlocked in negotiations over another coronavirus aid package – and provide relief to American workers and businesses still reeling from the pandemic.
That includes an order that would postpone the collection of payroll taxes from Sept. 1 through Dec. 31 for individuals earning less than $104,000 annually, or less than $2,000 per week.
Currently, all employees and employers pay a 6.2% payroll tax on wages capped out at $137,700. That money goes toward Social Security. Right now, an employee earning $50,000 per year would pay $3,100 in payroll tax. Workers also pay a Medicare tax of 1.45%.
Those taxes show up on your paystub as FICA, which stands for the Federal Insurance Contributions Act.
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During the period that payroll taxes are paused, Americans can expect to see a bigger paycheck. Larry Kudlow, a senior White House economic adviser, estimated during an interview with CNN that the deferral could save the average American about $1,200 over four months beginning in September.
The maximum benefit that Americans could see during that four-month period is about $2,149. But because Trump is ordering a payroll tax deferral, not a cut, the taxes will eventually be due at a later date.
To pause payroll taxes, the Trump administration is employing a section of the tax code that allows the Treasury secretary to postpone certain tax-related deadlines during a federally declared disaster. It's the same authority the Treasury Department used earlier in the year to delay the April 15 tax-filing deadline until July 15.
The move technically makes it a deferral of payroll taxes — not a suspension — although Trump has pledged to pursue a permanent cut to the payroll taxes.
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“If I’m victorious on Nov. 3, I plan to forgive these taxes and make permanent cuts to the payroll tax. I’m going to make them all permanent," Trump said during a news conference in Bedminster, N.J. “In other words, I’ll extend beyond the end of the year and terminate the tax,” Trump added later. “And so we’ll see what happens.” (Kudlow later clarified that Trump did not mean he was eliminating the tax with his executive orders).
Critics, including Democrats and some Republicans, say that temporarily pausing payroll taxes is an ineffective way to boost the nation's beleaguered economy because it does nothing to aid the millions of out-of-work Americans who are currently not receiving a paycheck.
”This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay,” Sen.Ron Wyden, the top Democrat on the Senate Finance Committee, said in a statement. “These workers would be hit with much bigger payments down the road.”
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The orders came as Republicans and Democrats failed to cut a stimulus deal before their self-imposed Friday deadline, putting at risk potentially trillions of dollars in aid for families, businesses and the U.S. economy, including a fresh round of $1,200 stimulus checks, extra unemployment aid for millions of out-of-work Americans, $100 billion to help reopen schools and relief for cash-strapped state and local governments.
After nearly two weeks of talks that have yielded no substantial progress, Trump tried to act unilaterally and bypass Congress, issuing executive orders to provide $400 in weekly unemployment aid to unemployed Americans (25% of which would come from cash-strapped state's budgets), extend student loan relief and discourage evictions.
However, some of his proposals would likely face legal challenges. The Constitution gives Congress the power of federal spending, and critics say Trump does not have the legal authority to issue executive orders allocating how much money should be spent on the pandemic.