What exactly is Payroll Tax Relief?

Before understanding what exactly is payroll tax relief, we need to understand what are payroll taxes.


What are payroll taxes?

What-exactly-is-Payroll-Tax-Relief

Anyone who is paid for their work has to pay a percentage of their payroll to the government.

When you work for an employer, this percentage is directly deducted from your earnings and paid to the IRS (Internal Revenue Service).

But if you are a freelancer, a professional service provider, or an entrepreneur, you need to calculate your own taxes and then pay them (they are not automatically deducted).

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What is payroll tax relief?

Now that we’ve clarified what payroll taxes are, we can better understand what exactly is payroll tax relief.

In simple terms, it is a tax credit provided to an employee who has earned an income by working for a certain amount of hours in a certain location.

Of course, you need to qualify for a payroll tax relief: the availability of tax relief for your specific case and the amount of relief you can obtain depend on many factors like:

  • the year you were employed
  • whether or not you are employed now that you’re applying for tax relief
  • the type of job you’re doing or have done
  • the number of hours you’ve worked or are working

The main effect of payroll tax relief for employees is that their paychecks would increase during the deferral period.

However, there are advantages for self-employed workers and disadvantages for both.


Disadvantages of payroll tax relief for employers

There is not an actual disadvantage to payroll tax relief, but it’s more a matter of understanding how it works. Tax relief can sometimes be only a delay.

You are not asked to pay taxes now, but they’ll be delayed: you’ll need to pay them in the future.

What does it mean for an employee? Employees who obtain the payroll tax relief would receive a bigger paycheck during the deferral period, but the paycheck would decrease at the end of that period (because taxes will be deducted).

This is a very important aspect to be aware of: you want to avoid bad surprises, and you need to know what will happen in the near future, or you’d risk ending up creating debt.

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Payroll tax relief for self-employed

Payroll tax relief has also been designed for the self-employed. Their taxes usually amount to 15% of their income.

During the deferral period, the percentage can decrease up to 9%. This is a temporary tax break designed to give self-employed’s finances a repriev.

This is because they have bigger resources to face the crisis and difficulties due to the pandemic.


Payroll tax relief in the future

One last thing which is important to know about payroll tax relief: it is an extraordinary measure that the government designed and put into action. It means that it is unlikely that you’ll be able to count on payroll tax relief in the future.

This is something that Congress decides to face crises and difficult times, so not only shouldn’t you plan on more tax relief solutions in the future, but you shouldn’t even hope for that!

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