How an Entirely Hypothetical Payroll Tax Cut Will Affect Your Paycheck
During part of this calendar week, President Donald Trump has been considering lowering payroll taxes. “I’ve been thinking about payroll taxes for a long time,” he told reporters Tuesday , then turned on Wednesday and told those same reporters, “I’m not going to think about tax cuts now,” he said. “We don’t need this. We have a strong economy. “
But listen, this guy changes his mind more than the picky eater trying to decide what to eat for lunch, so let’s just consider what he might be trying to do with your payroll taxes. I’m sure we’ll need to look at this again soon.
A payroll tax cut reduces the amount of tax levied from one of two places: Social Security or Medicare. When you receive your paycheck, 6.2% is deducted from Social Security tax. Your employer also pays 6.2%. Any income you earn in excess of $ 132,900 is not subject to Social Security tax.
In terms of Medicare tax, employees and employers pay 1.45% each, with a 0.9% surcharge on individual wages above $ 200,000. If you are self-employed, you pay a combined social security tax of 12.4% and a health insurance tax of 2.9% on your own.
When the Obama administration lowered payroll taxes in 2011 and 2012 to stimulate the post-crisis economy, the share of the social security tax for workers was reduced to 4.2%, while the share of employers remained the same.
How much will you save with a payroll tax cut
According to Forbes’ Kelly Phillips Erb, if President Trump insists on a payroll tax cut this year, most full-time employees will save somewhere around $ 908. The highest paid workers could save up to $ 2,658 through this payroll tax cut, she said.
But while you may welcome a small additional cushion in your paycheck, the payroll tax cut could cost the government up to $ 300 billion at a time when the deficit is already growing and is projected to continue to decline.
Congress will have to sign any payroll tax change, and CNBC’s Eamon Javers said the chances of Congress to support a sub-zero payroll tax cut .