Owe Me Back Like You Owe Your Tax: How To Handle The Government Payroll Tax Deferral
A couple of weeks ago, someone with the nickname of a pistol decided to offer up Americans what he deemed as a gift, but for some it feels like grief. What is that you ask? The Payroll Tax Deferral. While the name isn’t sexy, how some folks will feel around tax time will be semi- f*cked. In this article I want to give you an overview of what that means, some solutions you can implement + some updates since the initial shoe drop.
Let’s give a tea on what Payroll Tax is -
To keep to straight and short - Employers and employees both pay taxes to fund programs like Social Security and Medicare. Under the new deferral, the usual Social Security taxes would not be taken out of your paychecks.
What to look for?! -
Peep your pay stub for this line called “FICA SS Tax” or “OASDI” (from Old Age, Survivor and Disability Insurance) to give you a tip to see if you have been impacted or you can just reach out to HR!
So with the Payroll Tax Deferral 45 is calling for the following:
The Payroll Tax Deferral impacts employees making less than $4K bi-weekly (or $104K annually). No real insight into those who are paid on the hour.
Those companies within the private sector must opt-in.
The deferral option is at the decision of your employer and not you
Folks impacted will see a 6.2% decrease of your Social Security tax until Dec 31, 2020
Starting January 1, 2000 21 (yes, the full name), your check will look slimmer. Why? They will be increasing withholding from paychecks from January through April. Focus on this - You may face double withholding in the first quarter of 2021 due to this happening!
So what does that mean for you?
You will see an increase in your paychecks until deferment ends
The more you get, the more taxes hit. Why? Those taxes are deferred and not cut. Pending on your tax profile, you will more than likely pay that coint back.
People making $50,000 a year would have about $1,073 deferred over nine biweekly pay periods, according to a letter the U.S. Chamber of Commerce and other business groups sent policymakers in August that raised concerns about the deferral (reference).
Hold your edges, Fam -
While we know who we are dealing with, we need to shift our minds to be able to hover over and handle what is going to impact us from now until tax time. Give me a second, I will give you some insight on how to implement within this mess.
Just know with this Deferral, your checks will be heavier. Our amazing government is feeling that deferring taxes until the end of the year will help those dealing with the pandemic. When it’s actually going to possibly impact their livelihood next year and beyond. This extra coint isn’t a gift, it is basically a loan that you have to ‘owe me back’. Like the rest of the song in reference says, the government will be like “I think you oweeeee me something..” So, what do you do?! Ok, so, boom:
Core Focus: Check to see if your company is opt-ing out. Call up HR and simply ask. But be mindful of how you ask. Don’t be nasty. It’s not what you ask, but how.
If they are opt-ing out, rejoice! Shando! But then, I want you to start stacking some cash. Lean into what you can be saving. Why? “In this Pandemic?” Rona Mae Jenkins is still outside like some of us. The recovery period for not only the US, but the world Craig, isn’t going to be like Thanos with a simple snap. The snapback will not be quick. Prepare for the long haul with some delays.
1A. A lot of companies and states are flipping the table against this tax change. It’s a rebellion for me!
2. If your company and nem are still moving forward with implementing this, breathe. It’s going to be ok.
Solutions for this Sh*t -
Now that you know that you are going to be impacted. I want you to do the following steps to help you now and later. Take what you can and leave what you can’t. Meaning, if it is a step that you already have in place, skiiiiiiip or shift it to make it work for you. These are just suggestions on how to scale within this hell.
Pull your paychecks from the last 2 months. Look at them and leverage this. Look at how much on the Federal tax line was being snatched from you each paycheck.
After you curse, write this figure out. This will become your savings baseline for what you want to have in the cut before tax time. Also, this is potentially what you could stand to see doubled during Q1 of 2000 21. Depending on any new tax laws, this could eb and flow.
This step can go 2 ways:
- Peep your budget - how are you doing with your bills? Are you caught up? If you aren’t, you could catch up on certain areas. Yet be prepared to give that loan back (brace yourself).
- If you are situated, take that portion from your paycheck and stack it up. Stay disciplined, Fam. Don’t BMF this situation!
Make a plan and make it plain. Meet with your money and this situation and build how to maneuver through this. Don’t freak out, keep your energy sane. Put it into place how you pace yourself through this season. Write it down, look at it often. With each paycheck will tempt you to ball out a bit. Focus.
You get a bonus!? -
We are coming up on End- Of- Year Bonus time! If you are expecting to snatch a year-end bonus - check to see if it will be leveled into the same payroll entry as your usual paycheck. This might place you to be rolled over the $4K - be mindful, you might not be eligible for the deferral that pay period. If it’s counted separately, then you could be eligible to have Social Security taxes deferred.
And another ting -
If you happen to leave your job between Sept. 1 and Dec. 31 while receiving the deferral may have to repay the amount deferred immediately. Bruh! Again, govern yourself accordingly.
Dassit!
Now that you have all the facts, plan a strategy to keep yourself focused on your funds! If you have any questions, drop it down in the comments!