President Trump is once again pushing for a temporary payroll tax cut for American workers to get more cash into the economy. With regard to additional stimulus legislation, he has even said “we’re not doing anything unless we get a payroll tax cut.” However, Democrats are pushing back hard on the payroll tax idea. It’s not enough and doesn’t benefit people who need help the most, they say. So, expect a good old fashion political brawl on this issue as negotiations on another stimulus bill heat up.
How Much Money Would a Payroll Tax Save You
Every payday, 7.65% of your wages are subtracted from your paycheck to fund Social Security and Medicare (6.2% for Social Security; 1.45% for Medicare). Your employer pays an equivalent amount of tax. For 2020, the Social Security tax is only levied on the first $137,700 of earnings; however, an additional 0.9% Medicare tax is collected on wages over $200,000 for the year.
It’s not clear if the Trump administration is pressing for a 100% payroll tax cut (i.e., no tax is taken out of your paycheck) or only a partial cut. Assuming it’s a 100% cut, then someone making $15 per hour and working 40 hours per week would save about $46 per week, or slightly over $180 per month.
We also don’t know how long the tax cut would last. In March, the president was calling for the elimination or reduction of the payroll taxes until November or, possibly, for the rest of the year. However, a shorter or longer duration could be negotiated.
Critics claim that the infusion of cash into the economy would come too slowly from a payroll tax holiday. Instead, many lawmakers and experts would prefer either another round of stimulus check payments and, perhaps, monthly payments.
Who Would Not Get a Tax Break
Obviously, you have to get a paycheck to benefit from a payroll tax cut. So, if you’re unemployed, retired, a stay-at-home parent, or don’t have a job for some other reason, then a payroll tax cut won’t help you. This is one of the chief concerns among Democrats, who believe the people who need support the most aren’t helped by a payroll tax cut. They would prefer to see expanded unemployment benefits and assistance to state and local governments instead.
Impact on Social Security and Medicare
Democrats and some experts are also concerned about the impact on Social Security and Medicare, which are already dealing with financial issues. Since payroll taxes fund the two programs, they are worried about the long-term effects of diverting money away from these two social safety nets.
Author: Rocky Mengle
Source: Kiplinger: What a Payroll Tax Cut Would Mean for You