The Federal government has tools at its disposal during periods of economic distress like the one we’re in. These tools fall under one of two categories: supply-side or demand-side policies.
Supply-side policies seek to cut taxes to increase the flow of money in the market. Demand-side policies strive to put money directly into consumers’ hands. A stimulus check falls into the latter camp while a payroll tax cut falls under the former category.
But what is a payroll tax cut exactly? And how will the 2020 Social Security tax cut affect your bottom line? We’re about to tell you the answers to both of those questions below, so you better keep reading.
What Is a Payroll Tax Cut and What Does the 2020 Social Security Tax Cut Mean for Your Business?
A payroll tax cut seeks to reduce the taxes employees pay from their earned wages. In this case, that means employees won’t have to pay the 7%+ Social Security tax for payroll checks received between now and the year’s end.
If you have employees that make less than $2,000 per week, odds are you’ll have to deal with the 2020 Social Security tax cut. Here are some of the consequences you can expect to face this year.
Remind Your Employees: This Is Only a Deferment
The biggest misconception about the 2020 payroll tax cut is that it’s a free pass not to pay Social Security taxes. This is simply untrue. This year’s payroll tax cut is only a deferment, meaning your employees will have to pay back those taxes over time.
The only way 2020 Social Security taxes get wiped out for good? That would take a Congressional order to happen.
The Tax Cut Applies to Employers Too
Be Extra Cautious of Pay Stub Errors
It’s time to get friendly with your check stub maker because change is coming to your regular pay stub-generating routine.
Each of your employees’ paychecks will have to reflect the change in Social Security taxes. In 2021, you’ll also have to gradually withhold extra Social Security taxes from employees who qualify for the payroll tax cut.
Stay in the Know About 2020 Tax Cuts
So, what is a payroll tax cut? Tax cuts reduce the amount of taxes an employee pays out from each check. For example, the 2020 Social Security tax cut deferred these taxes until the beginning of 2021.
Are you searching for a one-stop-shop for 2020 tax cut news and updates? You’ve come to the right place. Keep checking back every day for breaking articles just like this one!
Article Submitted By Community Writer