This week’s post will be a short and brief one. But that does not mean that it is not an important one that needs to be discussed. And this is especially true to those of you who are working and earn less than $4,000 every two weeks or $104,000 annually. Now, if this does not apply to you, then if it does apply to someone you know or care about, please relay what I am about to discuss with them.
Starting today, September 1, 2020, by an Executive Order signed last month by the President, there will be a payroll tax holiday for people who are working and fall into the category of earning less than $4,000 in a bi-weekly paycheck or $104,000 annually. That means that the FICA tax withheld from your paycheck will instead not be withheld, and you will see a 6.2% increase in their paycheck. This “holiday” will go from September 1, 2020, through December 30, 2020.
As this tax holiday is temporary starting January 1, 2021, the tax will not only be withheld again, but they will withhold the 6.2% that was forgiven this year. That means you will have a temporary 6.2% pay cut after the start of the year until you repay the tax. And if, for some reason, you do not have the full amount repaid by May 1, 2021, and if not forgiven, penalties and interest will begin accruing.
This holiday will be a temporary benefit to low to middle-income earners now but may cause severe hardship next year when the tax will double. And to put this into perspective, the tax to be repaid is about a total of $1,600 for someone who earns about $75,000 annually. If this scenario does affect you or someone you know, you may wish to consider suggesting that they save the 6.2% that they receive now and use that when the tax doubles to 12.4% for a period next year.
Now, as this tax holiday is extremely brief, companies do have the option of not participating as the paperwork will be enormous. And if your company does participate, I would recommend that you insist they withhold and remit the tax as normal. And if they do not, I seriously recommend you save 6.2% so you will not have to suffer early next year.
If you have any questions or concerns, feel free to reach out to me or any fee-only Registered Financial Consultant or contact your human resource office. To join our email newsletter, fill out the form below.
