What is a Payroll Tax Holiday?

When a recession hits and the economy is struggling, the government can use several tools to help both individuals and companies. One option to help employees and small businesses with under a hundred workers is a payroll tax holiday. A payroll tax holiday is both easy to implement and would help more than 28 million employers and 33 percent of all workers in the U.S.

A temporary and targeted tax cut will kick-start the economy and help both employers and employees by leaving more money in their pockets instead of sending it to Washington. 

Since 1935, Uncle Sam has been collecting payroll taxes–currently at a rate of roughly 7.5 percent–to fund government programs like Medicare and Social Security. Additionally, your employer also pays an equal amount, which means 15 cents of every dollar a business pays their employees goes to the federal government. Unlike income taxes, everyone—no matter how much or how little your salary is—pays these payroll taxes.

In 2019, payroll taxes amounted to 1.2 trillion dollars.

A payroll tax holiday would suspend the collection of these taxes–acting as a tax cut for businesses and a pay bump for employees. For example, a worker who makes $50,000 per year would have an extra $3,750 in their pocket annually to save or spend. The business would also save the same amount of money—helping to keep more employees on the payroll while the company recovers from the pandemic induced recession. 

Small businesses employ 60 million workers and create nearly 70 percent of all new jobs. Congress can and should target a payroll tax holiday to the Main Street businesses that are among the hardest hit by the consequences of the pandemic. The small business community and their employees, need it now more than ever.