Okay, so this is not really a “how to” article, but it is definitely something to consider. Did you know your employer has the option, effective 9/1/2020, to opt in or out of a payroll tax deferment?
This deferment would allow your employer to choose whether you pay your half of the Social Security tax for the next four months.
Sounds like a no brainer, right?
Here is where it gets a little tricky:
1. This is a deferment, which means you would eventually have to pay the tax balance that has accrued.
2. It has not been how- or even IF- the taxes would have to be paid back. There is talk of having the deferred balance be forgiven. But, that has not been decided yet. If you have to pay it back the specific terms have not been determined. It could be a lump sum or over X weeks.
There are five possible scenarios right now:
1. Your employer does not opt in and the deferred taxes have to be paid back.
This means you were not affected. Life goes on as normal.
2. Your employer does not opt in and the taxes do not have to be paid and you get a refund on what you paid in.
This is much like the current income tax model where you get that “Yay! Bonus money” feeling while Uncle Sam gets an interest-free loan.
3. Your employer does not opt in and the taxes do not have to be paid and you do not get a refund on what you paid in.
This is one of the two “worst case scenarios”. You lose your money.
4. Your employer opts in and the deferred taxes have to be paid back.It depends on the repayment terms.
If it is a lump sum you could have sticker shock (worst case scenario). If it is over X weeks, your paycheck will be slightly lower.
5. Your employer opts in and the deferred taxes do not have to be paid back.
This is the best case scenario. You have extra money in your paycheck every week to use how you like.
How will this affect the self-employed?
This is not known yet. There could be a reduction in taxes when you complete your 2020 Schedule C. Or maybe nothing. Lawmakers are not known for having any compassion for the self-employed…
I will be sharing more as it becomes available. Much like the PPP loans, enhanced unemployment, and first round of stimulus checks, the government is implementing before finalizing.