With Congress unable to come to an agreement on a new stimulus package to help Americans during the Covid-19 pandemic in early August, President Trump signed an executive order allowing workers to in theory defer payroll taxes through the end of the year.
The problem is it’s unclear whether the executive order actually has any legal authority.
The first issue with the executive order is that whether it’s considered a tax cut or a tax deferral, it’s really something that should be done through Congress. The president does not have the power to unilaterally do away with taxes.
The other issue with this executive order is that it’s really unclear how the deferral would work. Employers are responsible for collecting the 6.2% Social Security payroll tax, and still must forward it to the IRS when it is due.
If they return that money to employees and have no way of making their IRS payments, they could be looking at a stiff tax penalty in the future.
Even if your employer is willing to cut your Social Security taxes as directed, it’s probably not a good idea to accept the offer as you’re just going to have to pay those taxes back at some point next year, and that bill will likely be substantial.
And as with most issues related to this executive order, we really don’t know what consequences it could have down the line. It is very possible that anyone who takes advantage of this questionable executive order and is unable to pay back these Social Security taxes could see future disability or retirement benefits reduced.
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