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Recent Changes to Your Paycheck Withholding

Recent Changes to Your Paycheck Withholding

| September 01, 2020

If you’ve noticed an unexpected increase in your paycheck recently, you’re not alone. While this could happen for several reasons, there are two likely and timely explanations you should watch out for.

First, this time of year is when a lot of our clients reach the Social Security wage base, at which time your employer will stop withholding Social Security taxes. The wage base for 2020 is $137,700, and the withholding is 6.2% of your paycheck which could result in a noticeable increase in your take-home pay if you’ve reached this base. [Note that your employer will still be withholding Medicare taxes at 1.47%.] If this applies to you, enjoy the boost in your paycheck and feel free to reach out about the optimal place to put that extra cash.

The second reason you could be seeing an increase in your paycheck, and one that requires careful attention and planning, is that your employer could have elected to defer certain  payroll taxes starting September 1st, until 2021. This is a result of executive action by President Trump in response to the coronavirus pandemic. While this could mean more take-home pay for you right now, you will be required to repay that tax before April of 2021. That means your employer will be withholding even more from your paychecks in January, barring any further legislation or executive action. Basically, if your employer has elected to defer payroll taxes and you are taking home more money in the coming months, be prepared to pay that back next year. If this applies to you, please let us know and we’ll be sure to discuss it at our Client Review Meeting this fall.  Note that the federal government has opted into this deferral, so for all of our government clients be sure to keep an eye on this.