Last week Treasury Secretary Steve Mnuchin announced that a payroll tax cut will not be included in the fourth Coronavirus relief bill. The bill will mostly focus on wage replacement and possibly another stimulus check for all Americans.
Mnuchin did hint at a fifth stimulus package could be on the horizon but gave no indication if it would include a payroll tax cut.
While there is no indication, and I do not have a crystal ball, I would not bank on a payroll tax cut. The CARES Act already allows for a deferral of payroll taxes and if there is no change to Social Security, Medicare, or Medicaid funding, which are funded by payroll taxes, a cut is not financially feasible. However, financial feasibility has not always stopped the federal government.
As of now, any deferred payroll taxes must be paid back in full by December of 2022. This would increase business expenses for the calendar years of 2021 and 2022. An increase in expenses during a recovery period is liability I would encourage businesses to avoid if possible.
The good news is there are other options to reduce payroll taxes permanently. A Payroll Tax Reduction Plan is a commonly overlooked strategy that most businesses are not taking advantage of. You can see the highlighted benefits and guidelines of it below and read about the strategy more in-depth here. You can also view our previously recorded webinar covering this strategy below.
Benefits of the plan:
- The employer receives an additional annual tax savings of up to $1,400.00 per participating employee
- Through the limited medical benefit provider, employee receives tax credits to fund additional healthcare and insurance benefits
- The tax credits reduce overall taxable income, decreasing the businesses FICA and payroll taxes
- On average employee benefits quadruple and their net pay DOES NOT change
Employer Eligibility Requirements:
- 10 or more full time W2 employees
- Employer must currently offer a healthcare plan
Employee Eligibility Requirements:
- Must currently have healthcare (it does not have to be with the employer, it can be through a spouse, parent the exchange ect)
- Must be full-time with the employer
- Must be a W2 Employee
- Must be 18 years or older
- Must have an annual income of $25,000 or more with the same employer
If you have any questions, comments, or concerns regarding any of this you can always reach out to our office here or reach me directly at the contact info listed below.
Founder, Managing Partner
Finance For Thought