Buzz
This week, President Donald Trump briefly entertained the notion of slashing payroll taxes. 'I’ve been mulling over payroll taxes for quite some time,' he shared with reporters on Tuesday, only to flip his stance on Wednesday and tell the same reporters, 'I’m not considering a tax cut at the moment,' adding, 'We don’t need it. Our economy is strong.'
But let’s be honest, this guy changes his position more frequently than someone trying to choose lunch at a deli, so we’ll likely need to revisit this subject soon enough and see what he could have done to alter your payroll taxes.
A payroll tax reduction means less money is collected from either Social Security or Medicare. Currently, 6.2% is deducted from your paycheck for Social Security tax, and your employer matches that amount. Any earnings exceeding $132,900 are exempt from Social Security tax.
For Medicare taxes, both employees and employers contribute 1.45%, with an additional 0.9% surtax applied to individual wages exceeding $200,000. If you're self-employed, you’re responsible for both the 12.4% Social Security tax and the 2.9% Medicare tax on your own.
During the Obama administration, payroll taxes were reduced in 2011 and 2012 to stimulate the economy following the recession. The employee's portion of the Social Security tax was lowered to 4.2%, while the employer’s contribution remained unchanged.
How Much You Could Save With a Payroll Tax Reduction
If President Trump proposed a payroll tax reduction this year, most full-time workers could expect to save around $908, according to Kelly Phillips Erb at Forbes. High earners, she suggests, could save as much as $2,658 through such a tax cut.
While a payroll tax reduction might add a little extra to your paycheck, it could also cost the government up to $300 billion during a time when the deficit is already growing and expected to increase further.
Any change to the payroll tax would require approval from Congress, and Eamon Javers of CNBC stated that the likelihood of Congress backing a payroll tax reduction is 'well below zero.'
