Payroll Tax Cut: Everything You Need to Know
Put simply, payroll taxes include the employer and employee shares of Social Security and Medicare taxes that are owed to the U.S. Government. A percentage is taken out of every American’s paycheck, and the amount is primarily based on full-time/part-time salaries, any tips that are made, and any other qualified additional income..
During the coronavirus pandemic businesses have been struggling to make ends meet, and many have been forced to close. Payroll taxes that were once easy, or at least financially possible, to pay, now seem impossible. Employers are struggling on the business side, and employees are having trouble providing for their families. The Payroll Tax Cut was designed to help assuage this problem by allowing workers who earn less than $4,000 every two weeks to temporarily suspend the payment of their payroll taxes.
We’ve heard about the Payroll Tax Cut, but what exactly does it entail? We’re here to clear things up. Here’s everything you need to know about the 2020, “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COID-19 Disaster.”
3 Fast Facts:
Medicare and Social Security Taxes
Medicare and Social Security taxes are the most affected by this memorandum. These taxes are generally taken out of paychecks, whether weekly or biweekly and with this new cut, these tax collections will be halted. These taxes can certainly add up, so for many across the country, these additional funds added to each paycheck could make a real difference.
People Who Qualify
As we previously mentioned, Americans who earn less than $4,000 biweekly will qualify to suspend the withholding of these taxes every week. To put things in perspective, if you look at that number in regards to a yearly salary, it equates to a little less than $105,000 per year. According to a 2017 study, this act could help more than 75% of Americans.
Unfortunately, this means that people who are currently unemployed will not qualify for these tax cuts. Also included in the list of people who do not apply: Americans that make more than the biweekly limit, retirees, and full-time parents.
Businesses Could See a Boost in Sales
With more money in the pockets of Americans that fall into a certain demographic, consumers will have more to spend on goods and essentials. This is a positive consequence for businesses that have seen a decline in sales during the pandemic.
We hope you found these fast facts helpful and informative. Our goal is to help guide you and your business, and provide unique insights from an objective point of view. Give us a call at (410) 465-4600 or contact us online for additional guidance.