In an effort to help struggling families, the President recently signed an executive order to defer the payroll tax for workers starting this month. Private companies can choose to opt-in, and if yours does so, they may ask if you want to defer the tax, or they may just go ahead without your permission.

Unfortunately, in this case more money in your pocket is a wish on a monkey’s paw. There are more details to it than what I have; go to this website for more. I’m gonna get to the important stuff - what it is, who it affects and how you can protect yourself from a very rude awakening come January. Read on.

So, what do you NEED TO KNOW about this?

Normally we pay 6.2% for Social Security from each of our paychecks. This tax deferral means if your employer opts-in, you don’t pay that 6.2% through December.
If you get the deferral, you’ll still owe the money! This is a deferral, not forgiveness. If your employer opts-in to the program, your paycheck will increase through December 31st. And on January 1st, it’ll drop like a stone well below what you’re getting now. You’ll be feeling flush for a while,

but come January - when the holiday season credit card bills are due - you’ll have far less ability to cope with those bills.

3. Federal employees and members of the military making less than $104,000 a year are automatically enrolled. If you aren’t a federal employee or member of the military, ask your employer what they plan to do.

4. If you are getting the Payroll Tax Deferral, SAVE THE EXTRA MONEY. Unless there are circumstances where you have to use it now, you’ll only be shooting yourself in the foot come January.

I ran some numbers to help you understand what that means. This pay doesn’t reflect other taxes, insurance, or retirement payments that would also come out of your check, it’s just to give you an example of the fast drop in pay you’ll experience if you aren’t prepared. For four months, you’ll get an extra $181 a paycheck, $362 a month. Then for four months your pay will drop from what you’re used to by $362 a paycheck, $724 a month. After this, it’ll steady off back to your regular pay.

The best way to level off this crazy wave pool of pay is to set aside the extra you’ll get through December and then, slowly, pay yourself from what you’ve saved. I’ve written out below a series of steps for you to take that I recommend. You do what works for you.

If you are part of the Payroll Tax Deferral, here’s a good way to level off your paychecks so you don’t go into debt come January.

I recommend creating a sub-savings account and name it “Jan - April lifeline” or something that reminds you of what it’s for so you don’t dip into it, at your normal bank or credit union.
Check a recent pay stub to find out how much is taken out for payroll taxes. You can also calculate it by multiplying your yearly salary times 0.062 and then dividing that by the number of paychecks you get per year.
If your employer uses direct deposit, ask them if they can split your take home and deposit the amount you figured out in Step 2 into your new savings account for the rest of the year. If they can’t, then set up a direct deposit at your bank. This is normally very easy to do. Give it a time limit - don’t let it run past December 31st. (If your employer does it for you, put an alert in your calendar for mid-December to ask HR to stop the savings deposit)
- If your employer does not use direct deposit, each time you deposit your paycheck, put the amount you calculated in Step 2 into your “Jan - April lifeline” savings account.
In January, set up an automatic deposit from “Jan - April lifeline” account to your checking every payday for the same amount you’ve been using.

Now your pay remains steady from now until May instead of the roller coaster it would have been. YAY!

Cheers,

Ms. Moody

What you need to know about the Payroll Tax Deferral