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Your paychecks might be a bit bigger for the rest of the year if your employer chooses to participate in a payroll tax deferral option authorized by President Donald Trump.
But the payment boost would be temporary.
You’d need to repay your portion of the deferred payroll taxes during the first four months of 2021, according to guidance recently issued by the Internal Revenue Service.
The payroll tax deferral
Trump signed a presidential memorandum Aug. 8 to provide additional temporary relief to Americans impacted by the COVID-19 pandemic.
The measure allows employers to temporarily defer eligible employees’ 6.2% Social Security payroll tax obligation between Sept. 1 and Dec. 31, 2020. Workers must earn less than $4,000 bi-weekly, or $104,000 annually, to participate.
“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,” the president’s memorandum states.
New guidance issued
Until recently, no additional information had been provided on how to put the order into action.
The Department of Treasury and the IRS issued guidance Aug. 28, explaining what it means for employers and their employees.
“Employers can either opt in or opt out of this measure,” said Meggan Heacock, vice president, controller at Dupaco Community Credit Union.
But with payroll software companies not set up to handle this option, it’s unlikely that most employers will participate, Heacock said.
What you can do
There’s still plenty of uncertainty about what this all means. But there are steps you can take:
Ask your employer
Interested in deferring your Social Security tax payments? Talk to your employer. Ask whether your company plans to opt into this measure.
Your employer must participate for you to defer your payroll tax obligations.
Remember, you’ll have to pay it back
If your employer does participate, remember that it’s a deferral—not forgiveness.
Eventually, you must pay your Social Security taxes.
If your employer participates, you’ll need to pay your postponed payments between Jan. 1 and April 30, 2021. That’s on top of your payroll tax obligations that resume in January.
“You would see more on your paycheck now, but less on your paycheck next year,” Heacock said. “You’ll need to think carefully about whether that’s in your best interest financially.”
Consider other options
If you’re struggling financially, you might have other options.
Wherever life has taken you this year, a free Dupaco Money Makeover gives you a chance to review your entire financial picture with a Dupaco expert. You’ll get personalized advice on how to spend less and save more to improve your financial well-being.