The $2 trillion economic stimulus package under consideration in Congress would likely allow struggling companies to defer paying the IRS a portion of payroll taxes.
Workers’ share, however, would still be collected and passed on to Uncle Sam.
“Companies would still be withholding from paychecks and remitting that to the IRS, but their half of payroll taxes would be delayed,” said Erica York, an economist with the Tax Foundation.
Handed a paycheck, money, payday
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A final version of the bill, whose goal is to deliver relief to U.S. households and companies struggling financially due to the coronavirus pandemic, has not been publicly released yet, and there is a chance that the specific language of the provisions affecting payroll taxes could be modified. Earlier discussions had included pausing or reducing those taxes for workers, as well.
Payroll taxes, as they’re called, are withheld from your wages and are used to fund government programs — largely Social Security and Medicare. Those taxes are on top of your federal and state income tax withholdings.
Basically, you and your employer split payroll taxes. For Social Security, 6.2% of your wages — up to $137,700 for 2020 — are withheld from your paycheck and sent to the IRS, and your company also remits a matched amount. In other words, the IRS receives the equivalent of 12.4% of your wages to support Social Security.
For Medicare, you and your company each chip in 1.45%, with no cap on wages subject to that portion of payroll taxes. In fact, an extra 0.9% Medicare tax is withheld for incomes above $200,000.
Self-employed workers pay both the employer and employee share — but are generally able to deduct half of it on their tax return.
Companies must regularly remit payroll taxes — both their contribution and what they withhold from workers’ paychecks — to the IRS, typically on a monthly or semi-weekly basis.
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“That means they have to have cash on hand to pay the taxes in a timely way,” York said.
“Offering a deferral on those payments helps ease the liquidity crunch many are facing,” she said. “It’s meant to help bridge the gap in the crisis so companies have [cash] to meet other obligations right now and pay their share of the taxes later.”
Based on a draft form of the bill, qualifying companies would be able delay their share of Social Security payroll taxes to the IRS. They would be delayed until Jan. 1, 2021, with 50% owed by the end of 2021 and the other half due Dec. 31, 2022. Companies’ share of the Medicare payroll tax would still be due as usual, York said.
Source : CNBC
