As of September 1, the federal payroll tax deferral is officially in motion. The program allows for employees to benefit from temporary tax relief and receive larger paychecks by suspending the 6.2% income tax paid to Social Security. While the temporarily larger paychecks are appealing at first glance to a grief-stricken nation dealing with the health and financial implications of the coronavirus pandemic, the program will likely offer more harm than good to Americans.
The tax deferral program is in its beneficial first stage, where it is deferring collecting Social Security tax from Americans who earn less than $4,000 per bi-weekly paycheck for the rest of 2020. Mere months from now, however, the IRS will approach participants to collect taxes once again, in addition to those they missed during this four-month suspension period.
To the dismay of federal workers' unions, federal government employees, including military members, are required to participate and may not opt out. Private companies will decide on their own whether to participate, so it's important to contact your employer to find out if your paycheck will see any changes that you need to account and save for.
If your employers give you the option to opt in or out of the program and you are financially stable enough to do so, it is likely in your best interest to decline participation. While you may have to continue budgeting for the time being, this year has taught us about the unpredictability of life and our inability to know where we will be a few months from now. Don't start your new year off with unnecessary additional debt. Act now to live easier in the future.
Contact Napoleon Law Firm, PLLC for professional tax help and counsel.