Payroll Tax Holiday
On Aug. 28, 2020 release of IRS Notice 2020-65 provides guidance on the Presidential Memorandum to defer the withholding, deposit, and payment of the employee share of Social Security tax.
From September 1 through December 31, 2020, a payroll tax holiday applies to employees whose wages are less than $4,000 for a biweekly pay period including salaried workers earning less than $104,000 per year. This applies only to Social Security taxes. The current rate is 6.2% so if your paycheck is $1,000, the tax you would pay is $62. Under this tax holiday, these taxes would not be withheld and would need to be paid back starting January 1, 2021.
All taxes must be paid back before April 30, 2021 or penalties, interest, and additions to tax will begin to accrue on employers for tax amounts that have not been paid. The holiday does not mean tax forgiveness and legislation would need to pass for any forgiveness to happen.
This is not mandatory and the employer can decide not to participate and you would continue to pay the Social Security taxes with each paycheck.
What Happens If I Take the Tax Holiday?
It would mean each paycheck from September 1 through December 31, 2020 would not have Social Security deducted from your paycheck. It would put a little bit more money in your pocket for the rest of 2020. However, all of those taxes would need to be repaid before April 30, 2021. What this could mean is that between January 1 through April 30, 2021, the employer will need to double the amount of Social Security taxes taken out of each of your paychecks. For example, the $1,000 paycheck you receive would now have Social Security taxes of 12.4% (or $124) deducted starting at the beginning of the year leaving you with a small paycheck.
If you change employment during this time, the employer is still liable for the Social Security taxes. The employer can make repayment arrangements with you and could deduct the amount owed from your final paycheck. Otherwise, the employer would have to pay the balance owed. No guidance has been given as to what happens when an employee quits and how the deferred taxes would be paid back.
For a comprehensive explanation & the most up-to-date information regarding the Economic Impact Payments, please visit:
- CEDAM's Tax Resource page
- IRS's Economic Impact Payment page
- Stimulus Payment Resource Page (created by University of Michigan)
As part of the Coronavirus Aid, Relief and Economic Security (CARES) Act, Americans will be receiving economic recovery rebates (stimulus payments) to provide some financial relief during the COVID-19 pandemic.
What does this mean?
The recovery rebates are an additional refundable tax credit that will be applied to 2020 tax returns, but estimates are paid out to taxpayers based on 2019 or 2018 adjusted gross income (AGI). This is an additional credit for the taxpayer on top of whatever refund or tax is owed for the 2020 tax year.
How do I know if I will receive an Economic Impact payment?
If either of the below apply to you, then you are all set!
- Filed your 2018 or 2019 taxes.
- Received Social Security or Railroad Retirment benefits.
You can also check the status of your payment here: Check the status of your stimulus payment
What if I still need to file a tax return for 2018 or 2019?
Filing 2019 taxes online yourself will be the QUICKEST and EASIEST way to receive your refund and economic stimulus payment. If you have a filing requirement, we recommend CreditKarma or IRS's Free File program for free online tax filing. These free sites are easy to use, some have online support available, and many can be used on a smartphone or tablet.
Our free in-person tax services (VITA) are suspended indefinitely due to COVID-19 (as are all other free in-person tax services in Washtenaw County). At this time, we have no estimate available for when we will be able to resume our tax services.
If you are unable to file your own taxes online, you can click here to be added to our Contact List to receive a notification if/when we resume VITA services. We have no estimate or specific details about when this might be.
Frequently Asked Questions
What if I do not receive Social Security and I have not filed taxes in prior years because I have no income or no filing requirement? Will I still receive a stimulus payment?
Eligible U.S. citizens or permanent residents who:
- Had gross income that did not exceed $12,200 ($24,400 for married couples) for 2019
- Were not otherwise required to file a federal income tax return for 2019, and didn't plan to
You can provide the necessary information to the IRS easily and quickly online here: Non-Filers: Enter Payment Info
Can college students receive the stimulus payment? They can! It will depend on their filing status. If they were claimed as a dependent on their parent’s tax return, and are 17 or older, they are not eligible for the payment. If the college student claimed themselves, they should be eligible for the full $1,200 payment.
When should I expect to receive my stimulus payment? According to the IRS, stimulus payments will be released within the next 3 weeks and will direct deposited/mailed to you per the method you used on your 2018 or 2019 tax return. Payments will begin as early as April 9th for people who filed in 2019 and gave direct deposit information. The majority of people will recieve their payments by April 17th. If the IRS does not have your direct deposit information they will mail you a paper check. This process will begin April 24th and continue through September, with the IRS prioritizing people with the lowest AGI first. You can click the link below to check the status of your stimulus payment
What method of payment will be used to receive my stimulus payment? The economic impact payment will be deposited directly into the same banking account reflected on your 2018 or 2019 tax return. If you opted to receive a paper check for your 2018 or 2019 refund, you will receive a check in the mail which may result in a multi-month delay.
How does the stimulus payment affect my 2020 taxes? Do I have to pay it back? This tax credit is an advance on your 2020 taxes. As we are now in the 2020 tax year, the recovery rebates are an additional refundable tax credit that will be applied to 2020 tax returns. Payments are being sent out to taxpayers now based on 2019 or 2018 adjusted gross income (AGI). If, when you file your 2020 taxes it turns out you were eligible for a larger credit, you will recieve it at that point. If it turns out you were eligible for a smaller credit, your credit amount will not change, and you will not be required to repay it.
What Should I Do with My Stimulus Check? Our financial coaches have created a resource to help you make a plan of how to best use your Stimulus Check. To access the tipsheet click HERE.
I lost my job and I need help figuring out the next steps. Please click here for other community resources available. You can also call 2-1-1 to talk to someone that can connect you with these resources.
I do not have a bank account, how do I get one? For help accessing low or no-fee bank accounts, please click here.
Personal Financial Tips
Our financial coaches have created a resource to provide some tips of steps you can take to protect your finances if you affected by COVID-19.
To access the English version please click HERE.
To access the Spanish version please click HERE.
What Should I Do with My Stimulus Check?
Our financial coaches have created a resource to help you make a plan of how to best use your Stimulus Check.
To access the tip sheet Click HERE.