Trump has signed a new executive order on Aug 8, 2020, which stops the deduction of the payroll tax from your biweekly or monthly pay stub.
There has been no exclusions announced specifically on the basis of your visa status in the USA. Hence, we assume that H1B, L1, H4 and L2 EAD workers are eligible to get the payroll tax defer benefit.
This article will discuss:
Calculator Payroll Tax Cut
You will not be charged the social security tax and medicare tax. This means that you will not see a deduction of 6.2% for Social Security and 1.45% for Medicare in your pay stub.
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Only the employee’s portion of payroll tax has been deferred.
- Biweekly Pay – Less than $4000 pre-tax
- Monthly pay – Less than $8,666 pre-tax
- Annual Pay – Less than $104,000 pre-tax (as per $4000 limit biweekly)
Gross Pay Calculation
The payroll tax exemption is available on Gross Pay before any tax is calculated.
Gross Pay = Hourly Rate * Number of Hours worked
Sample ADP payslip showing the gross pay calculation, Social Security and Medicare calculation:
A Biweekly pay of USD 3,400 can see a removal of Social security of $210.80 and $49.30 making a total of $260 saved each pay cycle for the employee.
Add it for 4 months (Sep 1, 2020, to Dec 31, 2020) and you can potentially save about $2k+ (approximate) if there are 8 complete payrolls.
Employers will still need to keep paying their portion of social security and medicare tax for each employee.
Defer vs Waive
Trump has only deferred the payroll taxes at this moment. This means that you will be liable to pay it at the time of filing your tax return in 2021 unless it is finally waived off.
Trump has promised to waive it off completely (the portion of tax that you defer) if he wins the election.
There is no guarantee that it will be waived off finally.
So, its better to keep paying it especially if you are on visa in the USA.
Federal, State Tax
There is no deferment or waiver of federal or state taxes. Your payroll will keep deducting them as per the current tax slabs.
The White house memorandum talks about Tax holiday which only affects the SSN and medicare contributions.
Multiple Executive orders were signed by Trump:
- Payroll tax defer till Dec 31 for annual income of 100k or lower.
- Student loans waived.
- Unemployment Benefits Extended till Dec 31, 2020 for $400 per week. Note that H1B and L1 workers cannot claim Unemployment insurance benefits.
You should be able to see a payroll tax benefit as announced by Trump in his executive order.
The payroll tax waiver should not be counted as public charge as it is given legally by IRS and Department of the Treasury for all people who are eligible.
The similar COVID-19 checks payments received in first round in March and April were paid as a tax credit too and will not be counted as public charge for future Green card processing.
At this time, the payroll tax is only being deferred as part of Trump’s executive order.
Trump promised that he will waive it off completely if he wins the President elections in November.
If he does waive it off completely, then there would be no tax payable for the period of deferment i.e. until Dec 31, 2020.
We do not know if the employers will give an option to choose if you want to defer the taxes or not.
We believe that they should give out an option as many people would like to keep paying given the fact that it is a deferment and not a waiver of taxes.
You might want to keep paying it with each payroll as the total amount would still be payable with your 2020 tax return next year unless it is waived off completely later.
The payroll taxes are deducted individually and your tax status should not be affected. If you are eligible, you should see the tax being not charged to you.
If your final family income is more than 100,000, then you may not be eligible.
The executive order does not clearly mention anything about the limits for family income at this time. We will update as and when the information is available.
Employers will take a decision based on the tax liability.
It is possible that employers do ask you to fill W-4 again to give you an option to choose tax holiday.