With lawmakers divided over how to provide more COVID-19 money, President Donald Trump has taken matters into his own hands, signing an executive order to put his preferred stimulus plan into effect. The executive order would temporarily defer the collection of payroll taxes from Sept. 1, 2020 to Dec. 31, 2020. The president is also urging Congress to forgive the deferred taxes so Americans don’t have to pay them back next year.
If the deferred taxes aren’t forgiven, Americans might see more money in their paychecks but will get a big tax bill. But even if the president gets his wish and you don’t ever have to pay back the funds, this coronavirus stimulus isn’t very generous compared with the last COVID-19 check. Here’s why.
Less cash than the first stimulus, more risk for Social Security
Under Trump’s stimulus plan, no payroll taxes for Social Security will be collected from workers during the months of September, October, November, and December 2020. However, although the president has pledged that the deferred taxes will be forgiven, workers will have to pay back that money eventually unless Congress acts or the president finds another legal option allowing for forgiveness.
Social Security payroll taxes are partially covered by employers, with most employees responsible for paying 6.2% on income up to the wage base limit. Since the real median income in the U.S. is $33,706, under the president’s plan, an adult earning the median salary would realize around $696 in savings — assuming the unpaid taxes are forgiven.
While almost $700 isn’t nothing, it’s not much — especially when the extra money is doled out in your paychecks over a four-month period. It is substantially less than the first coronavirus stimulus, which provided a lump sum payment of up to $1,200 per eligible adult and $500 per eligible dependent. In fact, a single adult with no dependents who is earning the median income would receive 42% less money under Trump’s plan. And for those with dependents, the disparity between the first payment and Trump’s stimulus would be even bigger.
And the plan could end up costing Americans in the end, as payroll taxes are the major source of funding for Social Security. If the deferred taxes are forgiven and revenue isn’t diverted from elsewhere, the popular retirement and disability benefits program could see its financial troubles worsen.
Will a better stimulus plan be signed into law?
While Trump’s payroll tax plan won’t do much to help most Americans, it’s not clear if anything better is coming down the pipeline. Lawmakers have struggled for weeks to try to find a compromise on another coronavirus relief bill. And while both Republicans and Democrats are in favor of providing a second stimulus payment, other key points of disagreement may mean no law is ever passed.
The bottom line is you can’t count on more COVID-19 money. Instead, you’ll have to stick with cutting your budget, taking advantage of whatever benefits you’re eligible for, and making other smart money moves to help you through the COVID-19 recession — including confirming you’re happy with your investment strategy so you won’t be in trouble if there’s a second coronavirus-driven market crash this year.