How Does the Payroll Tax Deferral Program Affect Your Contracting Business?

Payroll taxes are one thing that you’ll need to pay as part of your contracting business. As of September 1st, the federal government gave businesses the option to decline withholding these taxes from employee paychecks, as long as they meet certain requirements. There are benefits to this program, but also possible drawbacks. Here’s what you need to know.

What Are Payroll Taxes?
Payroll taxes are a percentage of an employees’ wages that must be withheld. These taxes come on top of withholding for federal or state income taxes. The payroll tax, which runs 6.2% of most employees’ wages, helps to pay for programs like Social Security. Employers are required by law to withhold it from their employees’ wages. People who are self-employed must pay these taxes either as part of their quarterly estimated taxes, or at the end of the year.

What Is the Payroll Tax Deferral Program?
The payroll tax deferral program issued by President Trump’s executive order in August defers payment of these taxes from September 1 through December 31, 2020. The program functions entirely on a voluntary basis. This means that employers must opt in by holding off on withholding these taxes from employees’ paychecks. It’s worth noting that this program is unique from other payroll tax holidays that have been enacted in the past. Unlike those times, this program is a deferral. In other words, any employer that chooses to participate in this program will need to withhold more taxes from employees’ wages to make up for it by April 30, 2021.

How Can the Program Affect Businesses?
Since the execution of the payroll tax deferral program comes primarily through executive order, some businesses aren’t clear on how they should use it. Employers aren’t required to take advantage of the program, but they also aren’t required to get employees’ support in order to implement it. Many businesses have chosen to participate in the program, in the hopes of ensuring a slightly higher wage for employees during difficult times. Other businesses have decided that the complication of determining eligibility, which may fluctuate for employees with variable income, makes the program too difficult to be worthwhile.

How Can the Tax Deferral Affect Individuals?
For those who qualify for the payroll tax deferral, a 6% temporary increase in paychecks could be a significant benefit. The program is limited to individuals making less than $4,000 every two weeks. This covers the vast majority of workers across the country. Employees should consider how paying it back may affect their paychecks in the first part of 2021. The federal government has made businesses that opt into the program responsible for withholding the additional taxes to cover for the deferral. This may mean that they have to enact new policies for employees who quit, to ensure that those taxes are repaid.

Could the Tax Deferral Program Change?
Given that the program came about through executive order, it’s possible that there may be additional legislation to support it, extend it or make it a true tax holiday. People who don’t pay much attention to the changes in tax laws may not know how common it is for a policy to be extended or changed right before it expires. If the government chooses to, the tax deferral could become a holiday that doesn’t need to be paid back. However, employees should pay attention to the news, and be wary of assuming anything will happen until it’s written into the law.

Figuring out taxes is something that you’ll do as an individual and a business owner. With the latest information, you’ll make wiser choices. For expert exam preparation on your way to becoming a licensed contractor, contact CSLS today!

This entry was posted in Contractor Business on by .

About CSLS

Contractors State License Service (CSLS) is the largest school in California devoted to the Construction professional. For over 23 years, CSLS has helped its students pass the exam to become licensed contractors in the State of California, licensing more students than any other school. From our main offices in Southern California, CSLS operates over 25 locations with full-service support and classrooms. We have grown to this extent by providing quality, professional services. In comparison, this provides 7 times the number of convenient locations than the second largest contractor school. Contractors State License Services is one of the only contractor schools in the state that is run by educators, not lawyers or people mostly interested in the bonding and insurance business. Contractors State License Services formerly operated under the oversight of the State of California's Bureau for Private Post Secondary and Vocational Education. As of January 1 2010, the new Bureau for Private Postsecondary Education (BPPE) came into existence replacing the BPPVE. CSLS now operates under the provisions of the California Private Postsecondary Education Act of 2009 (CPPEA), Article 4 Section 94874(f). Our Mission is simple; We can help you pass your California Contractors License Exam. Celebrating our 25th year, CSLS has helped over 120,000 students pass the California contractor licensing exam to become licensed contractors in the State of California. Additionally, we offer complete home study and online contractor’s license programs to help you pass your California contractors license exam. CSLS offers licensing classes for all types of contractor licenses, including General Engineering Contractor, General Building Contractor, Specialty Contractor, Insulation and Acoustical Contractor, Framing and Rough Carpentry Contractor, Cabinet, Millwork and Finish Carpentry Contractor, Concrete Contractor, Drywall Contractor, Electrical Contractor, Elevator Contractor, Landscaping Contractor, Warm-Air Heating, Ventilating and Air-Conditioning Contractor, and many others. For a complete list of contractor licenses, visit and tuned for more informative posts.