Payroll Tax Cut – What Does It Mean For Your Business?

by | Sep 27, 2020

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The payroll tax cut is one the latest measures taken by the government to attempt to ease the burden placed on small businesses and workers by the COVID-19 pandemic. As with the PPP and EIDL programs, we’re getting a lot of questions on how the payroll tax cut actually works and, more so, how it will directly impact your business as the direction from the government is minimal. This measure is meant to relieve cash flow temporarily. Honestly, it could actually end up costing your business more in the long run. You’re basically just kicking the can down the road to pay at later date rather than actually being relieved of it.

Below are the 3 main items to consider when measuring how the payroll tax cut will impact your business.

1. More take home pay for employees -The temporary payroll tax cut eliminates the portion each employee pays per paycheck into Social Security and Medicare. Currently, employers and employees share responsibility for a 12.4% tax that funds Social Security and a 2.9% tax that supports Medicare. Employers would still be responsible for paying their portion of the tax.  This means more work for the employer as they’ll be responsible for tracking and monitoring the withheld amount that the employee will eventually owe.

2. Withheld Taxes Must be Repaid – The payroll tax cut period is Sept. 1 through Dec. 31, 2020. Forbes reports  that ‘guidance released by the IRS on Aug. 28 specifies that deferred payroll taxes must be repaid…. Any tax that isn’t repaid within that window will be subject to interest and penalties.’ Essentially, the government is providing short term loans at 0% interest.  Those loans will need to be repaid in 2021. 

3. What is the employer’s responsibility –  The Washington Post reports ‘Employers have to collect all of the deferred payroll taxes between Jan. 1 and April 30, 2021. This means taking out double the normal tax.’ The employer is responsible for ensuring that the deferred tax amount is paid back to the government. In our eyes, this just means  more work and increased cost for most businesses. Employers will either need to spend the time themselves calculating the payroll taxes OR they will have to pay an additional amount to their accountant for the increase in hours spent handling payroll. Neither of which really helps them.

 As with all previous programs, it’s imperative that you consult with your financial expert in order to truly understand how this will impact your business.  My Small Business Pro is here to help answer all of your questions.

 

MEET THE TEAM: Milen Gomez, Staff ACCOUNTANT

6 months ago, we added a new staff accountant to our team: Milen Gomez. Our newest staff accountant is the best we could ask for with her incredible attention to detail and efficient mindset. She has been an essential part of our continued growth by always putting her...

Client Spotlight: Danielle Suchala Klausing

It’s always an exciting time when you’re ready to take the next step in life and buy a home. But finding that perfect home can be a challenge, especially if you’re not familiar with the real estate industry. That’s where Danielle comes in. With over 7 years of...

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One of the most expensive resources for any business is payroll. It’s also one of the most important. We are firm believers that people are your most valuable asset, so it’s no wonder that payroll gets costly. Especially if you are a professional services company, and...

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Ahhh the joys of being a business owner. You get to set your own schedule, be in complete control of your success and of course, deduct your business expenses.   Just like all of those statements, there are some pros, cons and a lot of misconceptions that go...

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It's March and that means two things:   Tax season is in full swing.   Chicago winter is about halfway over.   There isn‘t much a financial consultant can do when it comes to the weather, but when it comes to making your tax season less...

Meet the team: Eileen Manaloto, Sr. Accountant

Despite a job market full of unique challenges, My Small Business Pro was incredibly fortunate to bring on a new team member last year, Eileen Manaloto. Like many small businesses, we got creative in finding the right resource to support our amazing clients and fit...

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