By Kelly M. Lewis, CFP®, JD, LLM
Check your most recent paystub dated after September 1st, 2020. Did your paycheck increase without you actively making any changes to it? If you make less than $104,000, then it might be because of President Trump’s new payroll tax deferral that is now in effect through the end of the year.
Every payday, 7.65% of your wages are withheld from your paycheck to fund Social Security and Medicare. You might have seen this added back to your paycheck for now. While this might seem like an extra treat, think twice before spending these newfound dollars – you’ll just have to pay it back next year.
The executive order does not eliminate these payroll taxes, it is simply deferring them until January 2021. Come January, you will not only resume paying the standard 7.65%, but you will also pay an additional 7.65% to make up for the deferral: so while your paycheck might seem larger now, it will actually be lower between January 1, 2021 and April 30, 2021.
Many private employers have chosen not to participate in the payroll tax deferral. Federal employers, however, are required to participate.
If you have seen your paycheck increase because of the payroll tax deferral, please forward your paystub to your Advisor and we will review it for you and set up a discussion.