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IRS Tax Deferral: The need to know on payroll tax cuts

By: Kaneisha Mitchell

When you look at your paycheck it may look like you got a raise, that extra money is only yours temporarily. This is not free money. The IRS payroll tax deferral is the product of a presidential memorandum signed by President Donald Trump on August 8th that jump started September 1st.

Payroll taxes will be deferred – but only for a few months. Taxes will be deferred for workers who earn less than $4,000 biweekly (taxable wages or pretax). After December 31, 2020, all deferred taxes must be paid back by April 30, 2021 or you run the risk of interests, penalties, and tax liens.


3 Things You Need to Know about the Payroll Tax Cut:


1. Participation is not mandatory (unless Military or Government)

Unless you are Military or Federal Government employee then you have the ability to opt out of the payroll tax cut by contacting your Human Resource department. Some companies have decided to opt out automatically, but a large number of companies are the leaving the opt out option up to the employee upon request.


2. Employees taxes will double in 2021

Employers and/or employees who have chosen for their taxes to be deferred will see a drastic decrease in pay starting January 2021. You will be required not only to resume paying for normal tax amount but in addition the amount owed from deferment.


3. Payroll Tax Cut ≠ Forgiven

Unless a new presidential memorandum is created, or Congress creates a new bill stating that the deferred taxes will be forgiven and guidance doing so then repayment is required.

This is not financial relief this is deferred financial stress.

 

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