Let’s look at what the tax holiday entailed and how it affected businesses and employees. Continue reading →
On Aug. 8, 2020—during the first spike of COVID-19 in the United States—President Donald Trump issued an executive order to institute a “tax holiday.” If you’re still wondering when it starts, I’m afraid you’ve missed the mark. The tax holiday started on Sept. 1, 2020, and ended on Dec. 31, 2020. Moreover, it wasn’t a true tax cut, but a tax deferment.
So let’s look at what the tax holiday entailed and how it affected businesses and employees.
The Executive Order contained three sections that directly affected businesses and their employees. Here is what these sections entailed:
These two tie into each other. Section 1 states the COVID-19 pandemic is “of sufficient severity and magnitude to warrant an emergency declaration,” and Trump directed the Secretary of the Treasury (then Steven Mnuchin) to “use his authority to defer certain payroll tax obligations.” In simple terms, it’s like an essay introduction: It states the issue and the way Trump intended to fix it.
Section 2 goes into more detail about Trump’s policy. In it, he directed Mnuchin to defer the “withholding, deposit, and payment” on wages between Sept. 1 and Dec. 31, 2020. In sub-section (a), the order states the deferral will apply to anyone who makes less than $4,000 before taxes per bi-weekly paycheck (or the equivalent, if they aren’t paid bi-weekly).
Finally, sub-section (b) states this deferment will not incur any penalties, interest or other additions to the taxes deferred. In other words, the tax deferment is almost like an interest-free loan.
Section 4 is short and to the point. In it, Trump directed Mnuchin to “explore avenues” through which the deferment might become permanent. In other words, Trump asked Mnuchin to look into any methods through which the deferred taxes might be forgiven entirely.
In the end, however, these taxes were not forgiven. Everyone who received the tax deferment was required to pay it back through extra tax withholdings between Jan. 1 and April 31, 2021.
If you’re the owner of a private company or one of its employees, it probably never meant much at all. Most private entities opted out of the payroll tax holiday and decided to deduct taxes from paychecks as normal. It was never law, it was never mandatory and most private companies thought it was short-term relief with an impending reckoning.
Think about it: Trump gave the option to not pay taxes for four months, but you’d have to pay double taxes during the next four months to make up for it. At best, it would be a lot of work to accomplish nothing; at worst, it would harm employees by cutting their paychecks during the repayment period.
Even though the payroll tax cut proved to be irrelevant to most businesses, it did provide some value. Most notably, it compelled businesses to think carefully about their processes and how they affect their bottom line.
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