What to Do If You Can’t Opt Out of a Payroll Tax Deferral This Year
Last month, Trump announced a new payroll tax deferral that temporarily suspends employee taxes. The controversial order began on September 1 and states that companies can stop collecting the 6.2% tax paid by social security workers. While many companies have already opted out, some employees do not have the option to opt out.
Federal employers, including the military, are among those who passed the temporary payroll tax change. The problem is that deferred taxes cannot be forgiven without congressional approval. This means that companies will still be on the hook for money and may have to withhold more taxes in early 2021 to make up for the difference.
If you are a federal or private employee dealing with deferred pay – and you notice an increase in your latest paycheck – you should start planning your additional taxes in 2021. To prepare, start by putting aside every penny of extra income you received into your paycheck. By placing your money in a completely separate place, such as a high-yield Internet savings account, you are less likely to spend it.
There is also no guarantee that unpaid taxes will be forgiven. Democrats and Republicans are still debating the latest stimulus bill, and some lawmakers are reluctant to forgive deferred payroll taxes, which could spark an uphill battle in Congress.
A safer option is to plan on receiving lower salaries during the first four months of 2021. While this can be painful for employees, it may be the easiest way for companies to recover unpaid payroll taxes before the April 2021 deadline.
It can be tricky to figure out what your budget will look like in the spring – especially with the coronavirus pandemic still ongoing – but if you can save extra tax money now, your family will find it easier to manage lower salaries.