Payroll tax delay may mean more money, but you’ll have to pay it back

EXPERTS: Use extra paycheck money wisely

BIRMINGHAM, Ala. (WBRC) - You could start seeing more money in your paycheck as a result of an executive order signed by President Trump over the weekend.

A temporary delay on payroll taxes means you might see more money on your paycheck, but don’t get used to that money because you’ll probably have to pay it back.

On Saturday, President Trump told the treasury secretary to stop collecting some federal taxes on wages.

But don’t call it a tax cut.

“The president doesn’t necessarily have the power to pass tax cuts,” said Partner and Senior Advisor at the Welch Group, Marshall Clay.

So, he was kind of operating within his power as the president and is actually deferring the payroll taxes that employees have to pay between September 1st and December 31st of 2020,” Clay said.

The payroll tax shows up on your paystub as FICA, which stands for the Federal Insurance Contributions Act.

That money funds Social Security and Medicare, and is normally withheld every time you get paid.

But you'll start getting that money in September.

“First, it only applies to people making $104,000 a year essentially and below, so that comes to about $8,000 per month. So, it doesn’t apply to people making over that amount of money. The other thing of note is that employers don’t necessarily have to pay that out to their employees,” Clay explained.

Financial experts recommend talking to your employer to find out what their policy will be regarding the deferral.

In the meantime, they recommend using the extra cash wisely.

“Make sure that you have about three to six months of your income set aside just in cash. Obviously, if you have some outstanding credit card debt that’s charging you 17 to 20% interest, you may want to look to pay down some of that maybe balance out the dynamic of paying down debt versus accumulating some of that emergency cash,” Clay said.

Clay said you can go to your employer to request that the money be taken out like it normally does, if you want to avoid the potential for paying it back later, but each employer will probably have a different way of handling that.

Copyright 2020 WBRC. All rights reserved.