Trump's Payroll Tax Deferral Won't Give Benefit to this Group of People

President Donald Trump signed an executive order that calls for a payroll tax deferral starting September 1 until the end of 2020. 

Due to a lack of progress on the lawmaker's decision on a second stimulus check, Trump signed an order in August that breaks payroll taxes. The executive order would mean that workers won't have to pay 6.2% of Social Security tax during this time than the normal liability on their first $137,700 of earnings. 

(Photo : Igal Ness)
Due to lack of progress on lawmaker’s decision on a second stimulus check, Trump signed an order in August that breaks payroll taxes.

Deferred payroll taxes doesn't mean that the tax will be permanently broken. Trump has stated that he will seek to forgive all deferred payroll taxes from the latter part of 2020 if he is re-elected. However, the President will have the authority to do so and is still up for debate. According to Market Watch, the tax deferral mentioned above may end up serving a temporary paycheck boost, but leaving workers on the hook for a higher tax bill in 2021. 

The payroll tax break does not take the place of the second stimulus check, as per The Motley Fool. And the deferred payroll taxes will affect some group of people, but would otherwise stand to collect a direct stimulus payment. Here are the groups of people who won't benefit from the payroll tax break:

Unemployed

As the current recession rages on, millions of Americans are unemployed, right now. The rate of the jobless is expected to remain high through the end of the year. Unemployed individuals usually are eligible for a stimulus check. Still, they don't benefit from the deferred payroll taxes since they earn money to be taxed on as federal taxes applied to unemployment benefits while payroll taxes do not.

High earners

President Trump's executive order that breaks the payroll taxes applies to workers who earn up to $104,000 per year only. In some cases, the income thresholds to receive a stimulus check may be higher. For instance, if a couple filed a joint tax return that shows they earn up to $150,000, they could collect a stimulus check in full even if one of them earns more than $104,000 per year.

Retirees

Withdrawals of Social Security benefits and retirement plans can be taxable. However, just like the case with unemployment benefits, payroll taxes do not apply to retirees. Because of the situation, many seniors won't have the chance to benefit from Trump's payroll tax deferral.

Social Security benefits and retirement plan withdrawals can be taxable, but as is the case with unemployment benefits, payroll taxes don't apply. As such, many seniors won't manage to benefit from the President's payroll tax deferral.

Deferring payroll taxes for the rest of 2020 will boost paychecks so the workers can spend more money to help the economy. However, the second stimulus check could serve the same purpose, and there is no need to write off one's idea. It is clear that if another direct payment is approved, Americans will wait weeks to see if any of that money lands in their bank accounts. 

Therefore, a temporary payroll tax break might be the best relief available right now. It may not be as effective in helping the economy as President Trump wants, at least it's something that will still help than nothing.

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