Payroll Tax Suspension is now on as President Trump signed the executive order. Now, all workers who earn less than $104,000 are going to see a 6.2% increase in their paychecks.
The payroll tax suspension applies to all workers with net earnings of less than $104,000. The 6.2% Social Security tax suspension is going to be effective for the rest of 2020. As for whether or not it will continue after January 1, 2021, it’s up to the administration. Since the upcoming presidential elections can have an impact on the Social Security tax suspension, we will see what the future holds.
As for the deferred payroll tax obligations, employers are required to withhold and pay the deferred tax such as Social Security tax between January 1st, 2021, and April 30, 2021.
This will open up about two months of space for employees. You will basically pay 6.2% of Social Security tax that you were supposed to pay in three months in five months. Although not much will change in the end after April 30 as the total amount of Social Security tax withheld will be the same, it will basically spread to a longer period of time.
So, you can think of the payroll tax suspension as paying the same taxes but at a later date, in a longer period of time that is spread over five months. With that said, you will have more money in your pocket between September 1, 2020, and January 1, 2021 but these will be after January 1st, 2021.
Overall, this means a higher paycheck starting from September 1st to the end of 2020. As soon as more news comes out as to if the payroll tax suspension on Social Security tax will continue or not, we will keep you updated.
Note: You will see your total wages as subject to Social Security tax on your Form W2 but the taxes withheld will be less than what was supposed to be withheld. On your next year’s W2, you will see a larger amount of Social Security tax withheld propotionate to your Social Security wages.