A Payroll Tax Holiday Is no Free Lunch
A few weeks ago, President Donald Trump proposed a payroll tax holiday to Americans earning less than $100,000 per year. The gesture is better described as a deferral of the payroll tax burden until April 2021. That has some people worried, and they should be.
Talking about his plan, the president explained, “In a few moments, I will sign a directive, instructing the Treasury Department to allow employers to defer payment of the employee portion of certain payroll taxes from Sept. 1.” The deferral will last until the end of 2021. As the president added, “This will mean bigger paychecks for working families.”
An actual payroll tax holiday does mean an increase in take-home wages for some. According to recently published Internal Revenue Service (IRS) guidance on the president’s order, employers can temporarily stop withholding the employee’s 6.2 percent share of Social Security taxes for workers earning under $104,000 per year. That means more money in their paychecks for those eligible workers.
This could be significant. A little-known fact is that, for a majority of American taxpayers, the largest share of their federal tax bill is the payroll tax, not the income tax. In the way it’s designed, the payroll tax is regres
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