Republicans Propose Payroll Tax Plan—What It Could Mean For Your Paycheck And Social Security

House Republicans have proposed a payroll tax holiday through December 31, 2020.

Here’s what you need to know—and what it means for your paycheck.

Payroll Taxes

Rep. Kevin Brady (R-TX) proposed new legislation that would temporarily lower payroll taxes (FICA taxes) from 6.2% to 0% from September 1, 2020 through December 31, 2020. The new legislation is called the Support for Workers, Families and Social Security Act, and would effectively “forgive” the payroll tax deferral that Trump issued through an executive memorandum on August 8.

“The essential workers who keep this country running through the pandemic deserve a pay raise,” Brady, the ranking member on the House Ways and Means Committee, said. “This bill forgives the payroll taxes deferred by President Trump to help working families, many of whom now rely on a single paycheck.”


How the payroll tax holiday works

Here’s how the payroll tax holiday works:

  • This is a temporary payroll tax holiday that would last from September 1, 2020 until December 31, 2020.
  • During this period, employees would not have to pay a payroll tax, which is 6.2% for Social Security.
  • The payroll taxes that are not withheld from your paycheck do not have to be repaid at a later date.
  • Starting January 1, 2021, regular payroll taxes would continue in the normal course.

What the payroll tax cut means for your paycheck

If passed, this payroll tax holiday could impact your paycheck through December 31, 2020. Here’s how:

  1. Your paycheck may be higher for the remainder of this calendar year. This is because payroll tax may not be deducted from your paycheck.
  2. The goal of the payroll tax holiday is to provide American workers with more income during the Covid-19 pandemic.
  3. Starting January 1, 2021, your regular payroll taxes would be deducted from your paycheck.

How is this payroll tax proposal different than President Trump’s payroll tax deferral?

Trump’s payroll tax deferral through executive action grants you a temporary tax deferral through December 31, 2020. Think of the payroll tax deferral as an interest-free loan — and the amount of payroll tax that is deferred must be paid back. This means you could receive a higher paycheck through calendar year end because no payroll taxes would be withdrawn from your paycheck. However, your paycheck will be lower from January 1, 2021 through April 30, 2021. Why? Your paycheck will be lower during the first four months of 2021 because employers will deduct the payroll tax in the normal course beginning January 1, 2021. Employers also will withhold the payroll tax from September through December 2020 that was deferred through the payroll tax holiday.


Will there be payroll tax forgiveness?

Trump directed U.S. Treasury Secretary Steven Mnuchin to explore ways, including through legislation, to forgive the payroll taxes permanently that otherwise would have to be paid back during the first four months of 2021. Brady’s legislative proposal effectively would “forgive” the payroll tax deferral through Trump’s executive action. Therefore, under this new proposal, you would not have to repay the payroll taxes from this temporary payroll tax holiday.


How does the payroll tax holiday affect Social Security?

Brady’s legislation includes a provision to protect the Social Security trust fund. As such, transfers would be made from the general fund to offset the resulting lost tax revenue from the temporary payroll tax holiday. The proposed legislation would not affect any payments of Social Security benefits.


Will this payroll tax holiday become law?

Currently, the Democrats control the House of Representatives. Therefore, to pass this legislation, Democrats would need to support a payroll tax holiday. Speaker of the House Nancy Pelosi (D-CA) doesn’t support a payroll tax holiday at this time, and says she is focused on other pressing issues for financial relief in the wake of the Covid-19 pandemic. This includes, but is not limited to, second stimulus checks, unemployment benefits, state and local aid and food insecurity. Senate Minority Leader Chuck Schumer (D-NY) also doesn’t support a payroll tax holiday. Currently, Congress is at an impasse on a stimulus deal, as $300 a week unemployment benefits have now ended in 7 states.

“I call on Congress, including Democrats who forgave these payroll taxes twice for President Obama, to act now to help our essential workers keep more of what they work so hard to earn,” Brady said. “We’re not through this pandemic yet, and this will help local economies, create certainty for businesses, and safeguard our Social Security.”


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