Payroll taxes?
Do you all seriously think that employers are going to stop deducting payroll taxes?
If they do, then that means we are all responsible for paying our own tax bill, right? So are we supposed to set up a budget category in ynab for payroll taxes now in order to be ready in January or April or whenever payroll taxes are due? How are you all thinking this through?
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Not withholding taxes is illegal to my knowledge in the US. Is there a change being considered? Link?
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The president issued an executive order deferring payroll taxes. He is calling it a "payroll tax holiday." However, he has no authority to eliminate the tax. So after the "holiday," taxes accrued must be paid.
https://www.cnn.com/2020/08/09/politics/trump-executive-actions-coronavirus-explainer/index.html
I'm reading elsewhere that since this needs to be repaid, this should be conceived of as a loan from government to employers out of Social Security funds . . trying to figure it out and make sense of it and what it means for workers. (Other than the threat to Social Security, which I'm clear about.)-
Ivory Storm I looked up the loan part and it turns out all kinds of govt programs/branches take loans out in SS funds. So far, they have all been paid back, but it's been going on for a while.
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Khaki Storm it's creating an expectation against payroll taxes that concerns me . . . the politics. i know the finances can be managed if the politics are supportive.
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Ivory Storm I haven’t read the details but perhaps it’s a payment deferral for the business to remit rather than to not deduct from employees. They did something similar in Canada but with sales tax.
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MXMOM It's something that has been billed as a way to provide relief to workers and companies. The idea is that workers paychecks will go up, employers have to pay less for having those employees on the books, and then later...who knows? It's not a well thought out action, honestly (and is already being used as political leverage a la "vote for me and I'll get rid of the tax"). It's basically a gamble whether or not the tax will later be forgiven or need to be paid back by both employee and employers.
So yes deferral, but also maybe not a deferral, with the spirit of it being to raise paychecks by not collecting the tax.
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I'm not thinking it through yet. If the payroll tax "holiday" actually goes into effect you will know from your pay stub. Yes at that point I would start setting aside the amounts skipped until it is clear how that will be handled. I suspect nothing will actually happen with this.
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I think a lot of people are going to be so screwed if their employers do elect to stop withholding until the end of the year. There's going to be a lot of people who just don't understand it's a deferral and that they ultimately owe the money. I think it would be better if employers continue to withhold and then if they deferment is turned into a cut, they can issue a lump sum to their employees. Those are more fun to budget anyway.
But yes, if the extra shows up in your paycheck, I would suggest making a deferred taxes category and adding the difference to that category until such time as either a) you have to pay the tax or b) the cut is made permanent and you can reallocate wherever you want. If you are receiving period paychecks that are equal (monthly, bi-monthly, or every other week), you can just compare the data on your paystub from before and after the change to figure out how much you should be saving.
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jenmas said:
I think it would be better if employers continue to withholdThe point of the deferment/loan is to provide funds to those who need it now, though. I think it should be an opt-in thing where it was made very clear that it would need to be paid back. (No different than entering into any liability agreement.)
I agree with you that simply giving people larger paychecks out of the blue will not end well.
If my check goes up, I'll budget the increase to a category, as we're getting by for now. The additional interest in the meantime doesn't hurt, though.
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dakinemaui I don't see the employers doing it on an individualized basis as that creates a lot of work for them. It's likely going to be one or the other and I don't believe that employers will be able to adequately educate all of their employees and the administration is not going to be helpful here either.
I understand that it is to get funds into the hands of people who need it, but it only applies to people who are actually getting paid right now so it has no impact on the unemployed (SS and Medicare are not withheld from unemployment benefits). Which is why a payroll tax cut was not supported by either party as a good form of COVID relief.
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jenmas It also only applies to those making a certain salary or less. I believe I read something like $104k per year.
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Superbone Yes that is true. But someone making $104K is less likely to need COVID relief than someone making $40K. It's really no different than the cut off for the earlier stimulus checks.
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jenmas Agreed. My point was that not everybody will need to budget for it.
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dakinemaui said:
The point of the deferment/loan is to provide funds to those who need it now, though.That's really the hard part in this is that so many people DO need that right now, especially since it's looking murky that any other aid is going to be coming at all going by how last week went. I know a lot of people who can't afford to worry about tomorrow's problem right now.
I did some napkin math and figured out that with my education credits, the amount I would have to pay back basically washes out with those credits so I could afford to keep the extra. I have been urging people to really go over what their situation is and see what kind of impact this will have on them personally. That way even if they absolutely need those extra funds they can still know what to expect down the road and maybe plan for it.
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Hmm, this is interesting. I'm curious to see how it will play out. I feel like it's kind of crappy of the government to say that it's only deferral, but it wouldn't surprise me if that's all it ends up being.
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farfromtheusual because it is an executive order and hasn't gone through the legislature as it should.
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I think it's part of a structure to create confusion and expectations which would lead to defunding social security. The idea will be that if we vote for a certain candidate, we won't have to repay this loan . . (oh and by the way, we also won't have a social security system, but I don't expect that part to be emphasized as much). Defunding SSI sounds like an absolutely horrible idea, Social Security is a very popular program, which is why defunding it has been resisted in Congress for so long. Most of us feel better living in a society knowing that there is a social guarantee that elders will have something to sustain them.
But thanks for these thoughts - if my employer ends up advancing the money, I will put it in its own category so as not to get hit with a surprise bill. The interest I'll earn on that is paltry. What intense times.
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Well, I really don't want this to get political, because we probably have people on here of many political persuasions and I don't believe it's a good idea to get political and cause more divisiveness here, thus making it harder for us to help one another with our finances. But this post's topic is inherently political, so not much to do to avoid it.
I think it's a set up, I think the point is that by doing this, Trump is trying to force Congress to act and forgive the loan, since most people will just spend the money, and then will be more screwed once this is over, if they have to pay it back. How could they not pass a bill to forgive this "loan" and still claim to care about the average worker? How can they expect the average employee to be as responsible as the average YNABer, already planning to save the difference to pay back the loan, as seen in this thread? That's just not how most people are.
I will probably use it to finish off my emergency fund, and if I have to use it to pay it back, then I'll just go back to finishing off my emergency fund again the old fashioned way.
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PhysicsGal I agree. It's being used as a lever for other action, not sure totally what. Sometimes live would be easier without politics.
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PhysicsGal we used a payroll tax cut in 2011 although it went through Congress and was not a loan. I don't see this one happening.
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Tobias said:
It's not a well thought out action, honestly (and is already being used as political leverage a la "vote for meYes we have that happening here in Canada too. 🤦♀️
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MXMOM
hahahhaaaahhahahha. Agree. When I begin to despair of the accumulated federal/provincial/municipal idiocy up here, I turn my attention to the news from south of the border and take comfort in the fact that Canada does not have a monopoly on lack of intelligent leadership.....erm.....no offence intended.
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I saw a discussion on this topic on facebook yesterday, so I did some quick and dirty maths.
- Total payroll taxes on a given check (assuming you don't cap out on them, which I don't) are 7.65% of pay - maybe that's after a couple of deductions, but I'm ignoring that part.
- I get paid fortnightly, so that leaves 10 more pay periods between now and the end of the year, which would add to a total of 76.5% of a paycheck of deferred payroll taxes.
- When January 1 rolls around, and the deferred taxes come down, I see two possibilities on how it could go down. Obviously if people have managed to set aside the money that should have been withheld along the way they wouldn't have the issues I list below, but if they haven't, here's what I see.
- First option would be that it comes due when we file our taxes. This will be a huge amount due, but IF people calculate their taxes early in the year they could have a month or two to try to save up the money, before actually sending their tax return in along with the giant payment.
- Option two, which I feel like would actually be worse, is that they try to withhold it all in the first pay of January. Adding in the normal withholding form that first pay, payroll taxes would add up to 84.15% of pay. Add in that people have some level of income taxes, and more then likely some level of other deductions, and at last the entire first paycheck of the year will be eaten up entirely.
- For those who are paid weekly, it's even worse, because they'll owe 153% of a paycheck in back-payroll taxes.
- For those who are paid monthly, it won't be quite as bad, because they'll only owe 38.25% of their first pay in back taxes.
- Of course this is actually the same total amount of money, but again, it's the timing of being out the money that is better/worse, and this is all from my point of view.
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TheTabby I would put the likelihood of them withholding all of it at the first of the year it is close to zero. If it is not waived it will almost certainly come due at tax time but may include some provisions for extended payback.
Of course, that is assuming it happens at all which I doubt.
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I’ve loosely followed this topic, since there’s only so much I can take of current political games. I’m starting a new job tomorrow, so I’m wondering when this will take effect. I don’t want to assume the amount I actually take home is the amount I should count on permanently if it’s only this temporary thing.
My other question, which isn’t about me specifically, is how does a temporary payroll cut loan help the economy? If everyone goes out and spends the extra bit, but then hasn’t saved to repay it, won’t that make more of a mess?
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Happygirl the holiday will be for your Medicare and SS deductions and they should be clearly labeled on your paystub so you will know if they are coming out of your check. The percentage amount deducted is the same for everyone 7.65% combined, so if it’s not coming out of your check, you can do the math to figure out what it should be.
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What I don't get is why was the holiday capped at salaries of $104k? The SS cap is $137,700. It would have been pretty easy just to set the rate to zero for everyone.
Actually, I do get it. It's about bribing.... errr, courting swing voters before an election who won't understand the long term effects after the election. But let's not get into the politics of the situation. -
Happygirl said:
If everyone goes out and spends the extra bit, but then hasn’t saved to repay it, won’t that make more of a mess?You can say that about anyone who takes out a loan or leverages credit. The general idea is they would be better able to save/gradually pay back later. For example, after work hours have increased back to pre-virus levels.
The problem is that assumes a timeline for improvement that is likely not to be aligned with events in the real world.
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dakinemaui yes, that's the best plan. And, it is here now, about 6 weeks in effect.
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