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?


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?

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.


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I don’t really understand Payroll taxes, can someone explain
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Disadvantages of payroll tax relief for employers

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.

What Is The Deadline For Repaying Deferred Payroll Taxes?

What Is The Deadline For Repaying Deferred Payroll Taxes

According to the law, the deferred amounts are to be paid in two installments. The amount you pay is dependent on how much you deferred:

  • If you have deferred the entire amount, then you will pay half of it by December 31, 2021, and the second half by December 31, 2022.
  • If you choose to defer less than the full amount, then the first payment will be due by December 31, 2021, and this only needs to cover half of the total eligible deferral amount.

How To File For Payroll Taxes?

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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Wrapping Up

In this article, we saw what exactly payroll tax relief is, what payroll taxes are, what its disadvantages are, what its deadline is, etc. We hope you found this useful.


How are personal income taxes different from payroll taxes?

Income tax comprises local, state, and federal taxes, whereas payroll income tax is the tax on the salary and wages of employees and is shared between the employee and the employer.

Who all qualify for payroll tax relief?

All kinds of employers, including self-employed people, qualify for payroll tax relief.

Payroll tax can be entirely deferred for small businesses, while self-employed people can defer it for 50%.

Can the payroll taxes be forgiven?

There have been instances when the IRS has forgiven payroll taxes. The debt in such a case is settled for a lower amount than you initially owed.

The payroll tax can be forgiven if the business is no longer operational or Trust Fund Recovery Penalty is allocated to a taxpayer.

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  1. https://home.treasury.gov/policy-issues/coronavirus/assistance-for-american-industry/payroll-relief-programs#:~:text=Employers%20of%20all%20sizes%20that,FAQ%3A%20Employee%20Retention%20Credit[]

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