As negotiations for another stimulus bill appear to be going nowhere, President Trump says he'll help financially distressed Americans through executive action if Congress can't agree on a relief package. One of the executive orders the president is considering would defer the collection of payroll taxes until the end of the year. (He also said the deferral would be retroactive to July 1.)
There are plenty of lawmakers on both sides of the aisle who don't favor a payroll tax cut. It's not enough and doesn't benefit people who need help the most, they say. However, we may see one anyway if Democratic congressional leaders and White House negotiators can't come to an agreement. If that happens, your paychecks might be a little bigger for the rest of the year (assuming you're fortunate enough to have a job).
How Much Money Would a Payroll Tax Save You
Every payday, 7.65% of your wages are subtracted from your paycheck to fund Social Security and Medicare (6.2% for Social Security; 1.45% for Medicare). Your employer pays an equivalent amount of tax. For 2020, the Social Security tax is only levied on the first $137,700 of earnings; however, an additional 0.9% Medicare tax is collected on wages over $200,000 for the year.
It's not clear if Trump is pressing for a 100% payroll tax cut (i.e., no tax is taken out of your paycheck) or only a partial cut. Assuming it's a 100% cut, then someone making $15 per hour and working 40 hours per week would save about $46 per week, or slightly over $180 per month.
The goal is to quickly get more money into the economy. However, critics claim that the infusion of cash into the economy would come too slowly from a payroll tax holiday. Instead, many lawmakers and experts would prefer another round of stimulus check payments.
Who Would Not Get a Tax Break
Obviously, you have to get a paycheck to benefit from a payroll tax cut. So, if you're unemployed, retired, a stay-at-home parent, or don't have a job for some other reason, then a payroll tax cut won't help you. This is one of the chief concerns among Democrats (and some Republicans), who believe the people who need support the most aren't helped by a payroll tax cut. They would prefer to see expanded unemployment benefits and assistance to state and local governments instead.
Impact on Social Security and Medicare
There's also concerned about the impact on Social Security and Medicare, which are already dealing with financial issues. Since payroll taxes fund the two programs, some people are worried about the long-term effects of diverting money away from these two social safety nets.
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