BIRMINGHAM, Ala. (WBRC) - Employees across the country could see a boost in their paychecks after President Trump signed an executive order for the payroll tax deferral but a local financial advisor said you might want to hold off of spending the extra cash.
Touted to be extra relief for people impacted financially by COVID-19, the payroll tax deferral for people making less than $4,000 biweekly is a 6.2% bump in take-home pay until the end of the year.
For example, if your paycheck is $1,200 you would see around $74 extra bucks per check. It could help many families struggling due to the pandemic but it’s important to note- it’s not free money.
Partner and Senior Financial Advisor Marshall Clay with the Welch Group said the money goes towards social security but since that’s in a deficit, the money may have to be paid back.
“I would hold on to it. Put it into a highly liquid account but I anticipate having to pay it back,” Clay said.
Because the tax is deferred, the money would be recouped in the new year, along with the on-going taxes owed at that time.
For example, you get 6.2% extra pay for the remainder of 2019 but you’ll fork over double that in 2021.
Clay hoped politics would come in handy.
“In a political season, I would imagine that there are going to be some political pressure to make those tax deferrals permanent, so people won’t have to pay them back,” he said.
It’s up to your employer to decide to opt-in or out of the deferral; military and federal workers don’t get an option.