Is your net paycheck larger than it used to be for no known reason? If so, it could be the result of less taxes being withheld – and it may not be a good thing.
President Trump signed an executive order on September 1 allowing taxpayers to defer Social Security and Medicare taxes that are typically withheld through payroll. While this may give you more net pay right now, it will have to be repaid later unless legislation is passed forgiving the tax. This means that after the first of the year you might find that the withholding resumes AND you have to start repaying the taxes that were not withheld in 2019. This may be an unwelcomed surprise.
What you need to do
- Compare your pay stubs. Get your last pay stub from August and your current pay stub. Did the amount of Social Security and Medicare taxes withheld from your August paycheck change? If so, you may be looking at a tax repayment bill in early 2021.
- Keep an eye on each paycheck. Payroll departments are struggling to figure out if they are required to comply with the presidential executive order, payroll providers are trying to figure out how to comply, and everyone is wondering whether the tax obligation will be permanently forgiven.
- Be prepared to pay it back if necessary. If Social Security and Medicare taxes have not been withheld from your paycheck through the end of 2020, be prepared to write Uncle Sam a check to pay these taxes in early 2021.