Social Security/Medicare, Wage and Tax Reporting

White House Discusses Payroll Tax Cuts

According to new sources, senior White House officials were in preliminary discussions on August 19, 2019 about a possibility of a reduction in payroll taxes, as well as other tax breaks, to bolster a slowing economy.   In a press conference on August 20, 2019, President Trump denied concerns over the economy but did confirm that his Administration is looking at payroll and capital gains taxes.

While President Trump did not elaborate on how he defines payroll taxes, the term is typically used to describe the Social Security/Medicare (FICA) taxes that are paid by both employees and employers.  Social Security tax is 6.2% of annual wages up to $132,900 for 2019 and Medicare tax is 1.45% of all covered wages. 

Because FICA taxes are credited to trust funds that pay for federal retirement and disability benefits, proposals to reduce employer/employee contributions are typically dead on arrival.   However, President Obama was successful at enacting economic stimulus legislation that directly or indirectly put a portion of the FICA tax expense back into workers’ pockets with subsidies from the general budget.

Payroll tax cuts under President Obama

To create economic stimulus in response to the recession that triggered in 2008, President Obama stewarded two provisions through Congress that put a portion of worker’s FICA taxes back into the economy. It is emphasized that both provisions were funded by general revenues thereby adding to the national debt.  

  • The Making Work Pay tax credit. For 2009 and 2010, a refundable tax credit was available of $400 to working individuals and $800 to working families.  The credit was calculated at a rate of 6.2% on earned income for 2009 and 2010 and phased out for taxpayers with adjusted gross income over $75,000 ($150,000 for married couples filing jointly).  Employers delivered the credit to their employees by reducing their federal income tax withholding by the amount of the credit as computed for the periodic wage payment.  Any portion of the credit that was not delivered by the employer through payroll checks as of December 31 could be claimed by eligible taxpayers on the Form 1040.  The cost of the credit was funded by general revenues and not the Social Security trust fund.

  • Social Security tax cut.  In 2011 and 2012, the Social Security tax rate that applied to employees and self-employed individuals was reduced by 2.0% but employers were subject to the full 6.2%.  Like the Making Work Pay tax credit, the 2% reduction in workers’ Social Security taxes was funded by general revenues and not the Social Security trust fund. 

Observations

Thus far, the President has not presented a formal proposal to Congress for vote that would offer workers a reduction in their FICA taxes.  It is worthy to note, however, that should the nation face a recession similar in severity to that in 2008-2009, we may see a return to those Obama-era payroll tax cut provisions.

Quotes, Social Security/Medicare, Wage and Tax Reporting

Quotes to Note | Roosevelt on Social Security

RADIO ADDRESS ON THE THIRD ANNIVERSARY OF THE SOCIAL SECURITY ACT, August 15, 1938

The [Social Security] Act does not offer anyone, either individually or collectively, an easy life–nor was it ever intended so to do.

-Franklin D. Roosevelt, Radio address on the 3rd anniversary of the Social Security Act, August 15, 1938