Coronavirus Relief: Why a Payroll Tax Cut Is Unpopular in Congress
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What is Congress debating in the $1 trillion coronavirus relief package?
Here's your money briefing for Wednesday, July 22nd. I'm J.R. Whalen for The Wall Street Journal. A payroll tax cut is among the programs being debated in Washington for a new $1 trillion coronavirus relief package. It's got strong support from the White House, but lowering the amount that Uncle Sam takes from employees... is proving to be a tough sell on Capitol Hill. For payroll taxes, it's up to 15.3%.
Now, you don't see all of that coming out of your paycheck. You'll see half of that coming out of your paycheck, and the other half your employer has to pay. In general, all of that just makes it more expensive for an employer to have an employee.
So why isn't Congress likely to support a payroll tax cut? And what else is on the table that could help people pay the bills? Our tax reporter Richard Rubin will tell us after the break.
Congress and the White House are debating the details of a new coronavirus relief package. Both Republicans and Democrats are looking at another round of direct payments, but a payroll tax cut, which is strongly favored by President Trump, is receiving little support.
Why is a payroll tax cut getting a lukewarm reception in Congress?
Let's bring in tax reporter Richard Rubin to find out why. So Richard, reducing taxes, and in this case reducing taxes taken out of paychecks, seems like it would be a popular idea. Why is it getting such a lukewarm reception in Congress?
It's really getting a lukewarm reception because many lawmakers feel it's not really particularly suited to the moment, that it's a tax cut proposal that is kind of wide ranging and broad and not really targeted at helping people who are unemployed or targeted at helping people get back to work, that it would really benefit those people, but also everyone who still has a job.
So are there options on the table that would benefit unemployed people as well as those with jobs?
Yeah, this is a complex, multifaceted negotiation they're going through right now. And so they're looking at another round of $1,200 stimulus checks that would help Americans broadly. They're looking at extending the unemployment insurance that expires at the end of July. They're looking at tax credits that are much more targeted toward hiring. But the president seems particularly focused on a payroll tax cut, which is, you know, some version of suspending or reducing the up to 15.3% tax on wages.
Oh yeah, so I was going to ask you, so the amount of income taxes taken out depends upon how much you make, but what's the percentage of payroll taxes taken out of paychecks these days?
For payroll taxes, it's up to 15.3%.
How do payroll taxes work and what percentage is taken from paychecks?
Now, you don't see all of that coming out of your paycheck. You'll see half of that coming out of your paycheck and the other half your employer has to pay. In general, all of that just makes it more expensive for an employer to have an employee, right? There's a tax cost both in terms of getting money to the worker and Because tax comes out of it through the paycheck. And then there's the additional other side of that tax that the employer pays. And it's 15.3%. It goes to Social Security and Medicare. Once wages hit $137,700, the Social Security part of that goes away. So it's somewhat lighter for higher income employees.
And there's also been talk of a deferred payroll tax cut. What would that entail?
So there's no real clarity on what that would mean. It's important to remember that Congress has already done that for the employer side of the Social Security tax. In March, they said employers could wait to pay their share of the Social Security taxes in 2020 and pay it instead in 2021 and 2022. That, you know, maybe there's some way to do something similar to that on the employee side, but that could get pretty messy.
And one idea that's gotten support from both parties is the Employee Retention Tax Credit. What is that about?
So that's a tax credit that's actually larger than a payroll tax cut. It's up to 50% of wages and benefits instead of as much as 15.3%. So for each qualifying employee, it's a lot bigger and it's a larger subsidy. But it's only available if you forbid employers that have been having closures or that have been having significant declines in revenue.
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