In The News

Payroll tax cut debate: Having money now versus later

If given a choice between having a few more bucks in your pocket now and socking some away for later, what would you choose? It’s a balancing act that most people can relate to, and it’s an important component of a payroll tax holiday currently being debated in Congress.

Since 2010, employees have been paying 4.2 percent of their paychecks to Social Security. Prior to that, the rate was 6.2 percent. Congress is currently debating whether to extend the 2 percent tax holiday and other provisions of a package that include unemployment benefits. To no one’s surprise, lawmakers seem intent on taking the debate to the 11th hour.

The payroll tax holiday is a matter of individuals having money in their pockets now versus leaving it in the pool that funds Social Security, says John Turner, CPA and owner of The Trucker’s Accountant tax service.

“It puts money back into the hands of individual consumers. That’s the positive thing that it does. The negative thing is that it’s coming from Social Security,” Turner said Tuesday, Dec. 20.

The Social Security account could eventually go broke because of a number of factors. People are generally healthier and living longer, and the Baby Boomer generation is on the cusp of retirement age. Add to that the fact that Congress has raided the fund for other uses, and it’s a perfect storm for Social Security, Turner says.

The payroll tax holiday amounts to $500 for a $25,000 wage earner and $1,000 for a $50,000 wage earner, so it is significant. Self-employed individuals are affected as well because they contribute to the Social Security fund as both an employer and employee, Turner says.

According to Turner, a self-employed individual that was paying 12.4 percent into Social Security, and 2.9 percent into Medicare, for a total of 15.3 percent, is currently paying a total of 13.3 percent under the tax holiday. That would continue if the tax holiday is extended.

“Whether they’re getting a W-2 or whether they’re a sole proprietor, it’s going to benefit everyone,” Turner said. “Everybody’s affected, whether they receive a W-2 or a 1099.”

Time is running out on the current tax provisions that will sunset at the end of this year.

OOIDA’s Washington DC staff is monitoring the progress of the renewal legislation.

The House of Representatives initially passed a one-year extension to the bill, but the Senate opted to push for a two-month extension. On Tuesday, House leaders rejected the Senate’s two-month extension, pushing the debate down to the wire.

Editor’s note: Truckers can hear John Turner’s tax tips and other advice on the Road Dog Channel 106 on Sirius XM, where he contributes to regular segments hosted by Dave Nemo and Truckin’ Tim Ridley.

www.LandLineMag.com