Payroll Tax Cut: What it Could Mean for Businesses

payroll tax cut President Trump has allegedly been urging for a payroll tax cut to be implemented. In today’s economic situation, it is important to fully understand any major decision made by the federal government. In this blog, we will cover what exactly this means and how this affects businesses going forward.

What is a Payroll Tax Cut?

This decision has had mixed reviews on whether it will help or hurt the economy in the long run. The most important step to take is to understand what a payroll tax cut would immediately do, both to benefit and to hurt those affected:

  1. There would be more money in workers’ paychecks – employees will notice more money in their paycheck, and programs such as Social Security and Medicare will not receive as much funding; however, this increase would be very gradual and not major.
  2. It creates a boost for businesses – since this tax cut reduces the amount paid by employers, there is more money for struggling businesses to stay afloat; however, COVID-19 is the reason most businesses have been struggling and it is still prevalent today, meaning eventually this money will run out.
  3. A reduction in federal revenue – when the payroll tax cut began in 2011, the government lost $112 billion, and $115 billion in 2012.
  4. Unemployment not affected – those that are unemployed will not receive any kind of benefit, as well as those that aren’t working on maternity leave and retirement; according to CNN, another stimulus payment would be more effective.

Fox Business estimated that with this implemented, the maximum amount of money that an average American could receive is $2,149.

dollar bill with three cubes one green arrow, one red arrow and a percent sign

What Will it Mean for Business?

Let’s delve a little deeper into the payroll tax cut’s effect on business. Of course, this is all still hypothetical, and it is unknown what would really happen in the event this was implemented.

However, the bigger picture shows that the real reason for the economy’s decline is the coronavirus pandemic. The pandemic jumpstarted months of economic insecurity as many lost their jobs or had to begin hybrid working situations where they either began to – and still do – work from home, or go in to the workplace some days and work at home other days.

So even with a payroll tax cut that likely wouldn’t last long, this just prolongs the life of some businesses that aren’t going to make it through an indeterminable amount of time of social distancing and forced closures. With no vaccine or promise of a return to the prior economy, the futures of some businesses are doomed whether there are tax cuts made or not.

person observing pie charts taking notes and using a calculator

Final Cut

Although there are many assumptions about what the payroll tax cut would do for employees and businesses alike, there is no guarantee until it is instated by President Trump.

For more information on payroll, taxes, or trending economic news, visit our website. Here at Calabrese CPA, we offer comprehensive financial services to suit your needs.