DENVER — President Trumps paycheck tax deferral program began this week, but businesses and individuals are torn and confused about it.
The executive order gave employers the option to defer Social Security taxes between Sept. 1 and Dec. 31 for those making less than $4,000 per bi-weekly paycheck.
That’s 6.2% of extra wages many people can use right now.
Payroll professionals say it’s important to look at the deferral as a short-term loan, not tax forgiveness.
“Everyone is obviously and rightfully concerned they will have to pay this money back eventually,” Jason Roth, with Payroll Experts, told Denver7.
The money will have to be paid back by April 30, 2021.
Companies opting in are encouraged to pay back the taxes by doubling the payroll tax withholding starting in January. So while you may have more in your check now, during the first quarter of 2021 you will have less.
This is confusing for both individuals and businesses, who are still waiting on guidance from the IRS on how to report the deferral.
“It’s impossible to write the software to reduce the tax payment,” Roth said.
The US Chamber of Commerce and more than 30 industry groups sent a letter to Congress and the Treasury warning the deferral imposes a serious hardship on employees who will be left with a hefty tax bill.
That burden along with unclear guidance from the IRS is why many companies are choosing to opt out and stick with normal payroll tax deductions.
Adding to the uncertainty, President Trump said he would forgive the debt if he was reelected — something only Congress has the power to do.