- A new stimulus proposal from President Trump was included earlier this month in a flurry of executive orders he signed.
- It would offer some workers a temporary reprieve on paying payroll taxes, meaning they would get bigger paychecks for a certain amount of time.
- However, that tax revenue funds Social Security and Medicare and will need to be paid back, unless President Trump forgives it. If he doesn’t, those workers could be hit with a big tax bill in 2021.
As the Republican National Convention winds down this week, it’s emerged that the GOP has started working on a narrower, smaller coronavirus relief package, the details of which could be released to leaders of Congress for their consideration as soon as this week.
Whereas talks over the HEALS Act in the Senate broke down prior to senators departing for their traditional August recess, this new plan would reportedly focus only on areas of bipartisan accord. So, for example, this relief package (which would also include a smaller price tag, of only $500 billion) could include things like more small business loans, funding for coronavirus treatments and vaccines, as well as enhanced unemployment benefits — but no direct stimulus payments. Meantime, President Trump has gotten in on the act, with a new stimulus proposal of his own. Only his, however, includes an unwelcome surprise.
Trump recently signed a flurry of executive orders along these lines, one of which would give workers a temporary reprieve from paying payroll taxes.
On the surface, that might sound like a great idea, since workers would be taking home bigger paychecks every two weeks because of this move. Here’s the problem, though:
Funding for Social Security relies on that stream of payroll tax revenue. Such that Social Security Chief Actuary Stephen Goss in recent days actually penned a letter stating that if such tax relief became permanent, it could dry up Social Security’s funding in about three years, based on the change taking effect for earnings starting this coming January.
On August 8, Trump signed an executive order stipulating that Americans who make less than $100,000 would get to temporarily stop paying payroll taxes. But, as a CNBC analysis notes, those taxes will have to be paid back in 2021 — meaning, you could get stuck with a big tax bill next year because of this.
“If I’m victorious on November 3, I plan to forgive these taxes and make permanent cuts to the payroll tax,” Trump promised at the time he signed the order.
The way this is supposed to work normally is that, for 2020, employees pay 6.2% for Social Security on income up to $137,700. Additionally, they pay another 1.45% to fund Medicare. Per The Motley Fool, though, if Trump doesn’t end up forgiving these taxes on the back end, someone who makes $104,000 in annual income could end up owing $2,232 at tax time in 2021.