Trump’s Payroll Tax Cut: FAQs and What it Means for You
To put more money in American workers’ pockets, Trump’s new payroll tax cut may not be the pandemic relief many were hoping for. You see, it’s not exactly a “cut.” It’s more like a tax holiday, or better yet, a tax deferral. Whether your business is a nonprofit organization or otherwise, it’s worth taking a deeper dive to understand its potential impacts. Here are answers to some FAQs and what the payroll tax cut could mean for you.
What is the payroll tax cut?
President Donald Trump issued a series of presidential executive orders designed to reinvigorate the U.S. economy. One of these was called the “Memorandum on Deferring Payroll Tax Obligations in Light of the Ongoing COVID-19 Disaster.” This tax program applies to Americans who earn less than $4,000 in wages on a pretax, biweekly basis.
Is it really a payroll tax cut?
Not as it stands right now. This order, which has been touted as a “tax cut,” is actually deferring Social Security taxes. For those who qualify, the Social Security taxes will be deferred between September 1 through December 31, 2020. However, if no permanent cut is enacted, those accumulated taxes will need to be repaid in 2021.
Must my business participate in the tax cut? Should it?
Participation is voluntary, but it’s worth having a conversation with your accountant to determine if it’s worthwhile. There are some federal employees and active military personnel who have had their taxes deferred. However, most of the 5 million eligible employers (including several state and local governments, universities, colleges, and some nonprofits) have opted out of the tax cut program. They determined that it didn’t represent any real savings for themselves or their employees. They figured it was just shifting the timing of when the taxes were to be paid, so it didn’t seem worth the trouble.
What’s the likelihood that the taxes will be forgiven?
From what we’ve heard, Trump says that he’ll push through legislation to forgive the tax when he’s reelected. That would turn it from a tax deferral into an actual tax cut. Alternatively, he might implement a further holiday. However, he can’t repeal the taxes that fund Social Security — only Congress can permanently eliminate those.
I’m still confused…
You’re not the only one. There was an extremely short time frame between the day the president issued his memorandum, the Treasury’s abbreviated instructions, and the tax cut’s start date. People are still scrambling to figure out how to administer the deferral while keeping accurate accounting records. To make matters worse, many payroll software programs and systems aren’t readily adaptable to handle these atypical tax holiday requirements.
If you need a hand sorting it all out, give us a shout. As a top provider of outsourced accounting services for hundreds of organizations, we’d love to lend a hand. Our knowledgeable team and top-notch technology are ready to assist. Don’t put it off. Let’s talk — schedule your complimentary consultation call today.
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