The tax deferment program, which begins Sept. 1, means you'll likely see an overall increase in your take-home pay. However, there's no such thing as a free lunch - especially when it comes from the government. That extra money in your paycheck will eventually need to be repaid back to the government.
However, the White House says Trump has ordered Treasury Secretary Steven Mnuchin to look into ways to do away with the need for taxpayers to return the money at a later date.
The IRS on Friday sent out guidance on the payroll tax holiday. Employers are allowed to either defer the taxes for the rest of 2020 or continue to deduct the taxes as normal. If the taxes are deferred, employers will be required to deduct more money from employee's paychecks in order to make up the difference beginning on Jan. 1, 2021 to April 30, 2021.
Payroll taxes are used to fund federal programs such as Medicare and Social Security. Both the employer and employee contribute a portion of their paycheck to the program (6.2%). Trump's executive order suspends the collection of that tax, effectively increasing your take home pay. For example, a full-time worker who makes $15 an hour would see an average increase of $74 in their paycheck.
The payroll tax holiday is restricted to those employees who make no more than $4,000 every two weeks. Those people who earn more than that will not see their checks increase as they are ineligible for the payroll tax holiday. It's unclear how Trump's executive memo would affect those self-employed workers and contractors.
While Congress has promised another round of financial aid amid the coronavirus pandemic, both parties have remained far apart on the amount and type of aid needed for Americans. In May, the Democratic-led House passed the HEROES Act, a $3.3 trillion stimulus package that included additional money for states, eviction relief, another $1,200 stimulus check, and extended unemployment aid among other items.
However, the GOP-controlled Senate called the Democrats' bill a "non-starter" and released their own stimulus bill, the HEALS Act in late July. However, stiff opposition on both sides of the aisle saw the Republican package become bogged down in partisan politics.