2020 Payroll Tax Deferral – When Will It Start and How Much Extra in My Pay Check?

Per Trump’s order (see below) to suspend employee payroll taxes for 2020 and defer them to 2021, many eligible workers will enjoy a temporary boost to their paychecks in 2020. See this article for more details on how this is implemented per IRS guideline. The employee payroll tax break is equivalent to 6.2% of a worker’s paycheck (essentially the social security tax/FICA line on your pay slip) and is only available for those making less than $4,000 on a bi-weekly basis, or $104,000 per year and applies to wages paid starting September 1, 2020, through December 31, 2020.

The table shows how much your gross (pre-tax) pay would increase based on the deferral of this tax cut. E.g. someone earning $1,000 bi-weekly (26 bi-weekly periods in a year) from September through December would get an additional $62 in their bi-weekly paycheck, which is equivalent to $558 in 2020 (over 9 bi-weekly periods). Note this table is just illustrative and everyone’s pay check will vary based on deductions, withholding and other pay variations (e.g. overtime) so you will need to check with your employer for your specific increase related to this tax deferral.

Hourly WageBi-weekly Gross PayAnnual Equivalent2020 Bi-weekly Benefit2020 Total Saving (Q4)

Also note, the deferral will only last for 2020. In 2021 employees will be liable to pay this back and employers will withhold money from your paycheck for this. Employers have to remit the deferred taxes to the IRS by the end of April 2021.

[Executive Order] President Trump has doubled down on his desire for a payroll tax cut by signing into law an executive order that will cut (and forgive) payroll taxes for those employees earning less than $4,000 per bi-weekly pay period (or $104,000 annually). The following elements are part of the executive order memorandum:

  •  I am directing the Secretary of the Treasury to use his authority to defer certain payroll tax obligations with respect to the American workers most in need. This modest, targeted action will put money directly in the pockets of American workers and generate additional incentives for work and employment, right when the money is needed most.
  • Defer the withholding, deposit, and payment of the tax imposed on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020
  • This deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.
  • Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.

Source: White House Executive Order – Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster

Details are still pending but I will continue to update this article as more information comes out. Both Republican and Democrats in Congress oppose this measure, so will be interesting to see if they can compromise with the President on this in the final stimulus bill, or else we could see months of legal challenges to pass this tax break. Please subscribe via email to stay up-to-date with the latest updates on this and related topics.

[Prior Update] Given the recent market volatility and likely economic fallout from the Corona virus driven slow down, the Trump administration has finally started proposing fiscal stimulus measures. This includes a payroll tax cut which will allow employees to take home or pay and reduce the tax burden on employers.

“Very substantial relief that’s a big number,” Trump said. “We’re also going to be talking about hourly wage earners getting help so that they can be in a position so they are not going to ever miss a paycheck,” he said. President Trump has urged Congress to approve a payroll tax cut until the end of the year, as the novel coronavirus continues to weigh on the U.S. economy.

“If you want to get money into the hands of people quickly & efficiently, let them have the full money that they earned, APPROVE A PAYROLL TAX CUT until the end of the year, December 31,” Trump wrote in a tweet. “Then you are doing something that is really meaningful. Only that will make a big difference”

The opening proposal from the administration is a 0% payroll tax rate for employers and employees that would last through the rest of this year.

Regardless of the way a payroll tax cut would be implemented it would likely most help households least in need (since the cut is a percentage of income up to $137,000) and would undermine Social Security, the program most dependent on the payroll tax which funds this program.

While the Republican controlled Senate is generally supportive of this move, the Democratic controlled house is not. Concerns are around whether this will have any real longer term impact and the fact it will continue to our already ballooning deficit.

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3 thoughts on “2020 Payroll Tax Deferral – When Will It Start and How Much Extra in My Pay Check?”

  1. From what I understand, “Payroll taxes” are Social Security and Medicare ‘contributions.’
    A W2 employee ‘contributes’ 6.2% of their gross pay towards Social Security, and 1.45% of gross pay towards Medicare. The employer also ‘contributes’ a like amount. For this current year, contributions to Social Security stop once you’ve earned $137,700.

    A 0% payroll tax rate would eliminate contributions to Social Security and Medicare – and most likely impact future payments once retirement age is reached.

    For every $100 earned, $7.65 is “contributed” by the employee and $7.65 is contributed by the employer. Not a “very substantial relief” in my opinion.

    And this does not address contract workers who are not employees!

    Please correct me if I am wrong.

  2. Would you explain what this payroll tax cut is. and what it means isn’t being funded after the payroll cut, ,that is being funded now?


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