payroll tax

Why Some Companies Are Opting Out of the Payroll Tax Deferral

NBC Universal, Inc.

On Sept. 1, President Donald Trump’s payroll tax holiday went into effect, allowing those who qualify the option of boosting their take home pay through the end of the year.

“We’ve been talking to lots of employers,” said Neil Bradley of the U.S. Chamber of Commerce. 

Bradley says most companies they’ve talked to are choosing not to implement the tax deferral.

“For the simple reason that choosing to do so would leave their employees with a really hefty tax bill that would have to be collected,” Bradley explained.

If your company is opting in, you’re able to defer the 6.2% you pay in social security taxes out of every paycheck through the end of the year. So someone who gets paid every two weeks and makes $50,000 a year, could see an increase of $119 in their net pay during that time period. But they will have to make up those taxes during the first four months of 2021.

“Basically they’re shifting the timing of when the tax will be paid from the fall to the beginning of next year,” said Garrett Watson, a senior policy analyst at The Tax Foundation. 

It’s one reason why Watson says if your employer is participating in the tax holiday, you need to make sure you plan ahead.

“If you are budgeting, for example, say $1,500 a month of $4,000 a month, you may have a slightly lower amount that you’re getting from your net income because you’re paying that additional tax back,” Watson said.

It would require an act of Congress for those taxes to be forgiven, and so far, there has been no indication that will happen.

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