States are looking for new ways to tax during this pandemic: Expert

Dan Geltrude, Geltrude & Company Founder and author of Positive Financial Karma joins the On the Move panel to discuss the Payroll Tax Deferral program and the impact it will have on your paycheck.

Video Transcript

ADAM SHAPIRO: I want to talk about that payroll tax deferral and what this means for so many Americans. To help us understand what you want to be careful of if you're going to get this tax deferral, Dan Geltrude from Geltrude and Company founder. He's also the author of "The Positive Financial Karma," the book "Positive Financial Karma." So Dan, this is not, perhaps, the panacea a lot of people think. Why?

DAN GELTRUDE: Well, it's not, because you have to pay it back. This is exactly what it's being billed at as right now. This is a holiday. This is a deferral.

So what we're talking about-- Social Security tax, payroll tax. 6.2%. As of today, September 1, through the remainder of the year, you don't have to pay it. And you pay that by having it withheld from your paycheck.

The big catch here, Adam, is starting January 1 through April 30, you have to pay it back. So this is only four months for free, temporarily. And then next year, you pay it back. And I'm going to tell you this-- starting in the new year for companies that opt into this, they are going to-- those employees are going to have some post-holiday blues, for sure, because their paychecks are going to go down even more, withholding double to make up for what you didn't pay these last four months of 2020.

MELODY HAHM: Just thinking about the administrative sort of nightmares that have been reported, and perhaps one of the reasons why some businesses are opting out, which seems like a bizarre scenario. Hey, you can withhold paying, but ultimately, as I understand it, a lot of companies are saying it might not be worth that sort of headache and pain, as you point out. Those taxes are not going away. So for individual employees who perhaps on April 15 would be very scared to know that they owe money rather than get that refund that they're so used to, how do you advise that companies be thinking about this? Because I know it's not as easy and as simple as we would like it to be.

DAN GELTRUDE: There's no question about that there's going to be some administrative pain here related to how all of this is going to work. But that aside, there's a couple of questions that I have that I think are really important here. Now, when you're talking about payroll taxes, even the employee portion, the employer is the one who is responsible for remitting those payroll taxes.

So let's just say you have an employee that stays on through the end of the year and then in January leaves employment. Now, those payroll taxes, which were part of the employee's compensation, now have to be paid. But if they leave, what are the options for the employer to get those taxes from the employee in order to be able to remit it? So there are some risks there for the employers. And they need to be careful about that.

You may really find that when it comes to seasonal employees, right? Because during the holiday season, there are many companies that will ramp up employment. And then right after the holidays, those employees are gone. So then what do you do? So it's a slippery slope here beyond the administrative situation for employers.

And let me also add one more thing-- now, President Trump is talking about after the election making this deferral permanent, meaning it doesn't have to be paid back. So if you're an employer and you did not opt into this, you could potentially lose out. But the gamble is to assume that President Trump is reelected and he would need to have an all-Republican Congress in order to be able to pull this off. If the Republicans don't have both houses, I say the chances of him being able to move this deferral into a permanent nonpayment or forgiveness of this payroll tax is between slim and none, because this doesn't even have Republican support across the board. So it's a tough call on what to do.

DAN ROBERTS: Dan, Dan Roberts here. You mentioned the catch for consumers who get this break and the post-holiday blues. I mean, I remember a few weeks ago when we got Walmart and Target earnings and the online sales were so big. Those companies on their earnings call said they thought a lot of people were spending their stimulus checks at Walmart. And that has some sort of troubling implications. I guess I'd ask you how much of a danger there is that people will overspend in the quarter where they get this break because there is this confusion and they don't understand that later they're going to have to pay back?

DAN GELTRUDE: I think you're exactly right with that, because what's going to happen is from today, September 1, through the end of the year, paychecks are going to be higher. And when you have that money in hand, the tendency is going to be to spend. Or at least there's a temptation to do that.

Now, we get into 2021, and those credit card bills are coming due, and potentially your tax bill on April 15. And you're experiencing lower paychecks. So if you're going to be one of the people who is gonna do this, then you really have to think through your discipline with your finances to make sure you remember that this is only for a brief period of time. And when we get into the new year, you are going to have less money in your pocket and presumably when you have more bills. It's a risk to take.

ADAM SHAPIRO: Dan, let me broaden this out, because you are the author of "Positive Financial Karma." And a lot of Americans, despite the economic hardship that so many of our fellow citizens are feeling, a lot of Americans are doing pretty well. Some have refinanced their mortgages. Others have not suffered a cut in pay, yet are working from home. Are there going to be tax implications from these kinds of things for those who are doing well that they need to take into consideration now as we head towards the end of the year and prepare for the tax burden in the spring?

DAN GELTRUDE: Well, what I think you're going to see here is the government-- and let's talk specifically about state governments, which are starved for tax dollars right now. I'm in New Jersey. So if we focus in on that for a moment, New Jersey is a big commuter state.

And what's happening now as people are working from home. So you have a decrease in tolls. And you have a decrease in collecting gas tax. So what happens? Gas tax goes up.

So states, in particular, are going to be looking for new ways to tax. Those who are doing very well in this pandemic time, the millionaires specifically or the wealthy, they are absolutely going to be facing new taxes. So I think there's going to be a lot of hidden fees and taxes and tolls that are all going to be coming down the line. As people save money somewhere, they're going to end up having to pay it in order to keep government rolling along. It's unfortunate, but that's what we're seeing happening right now in real time in a lot of the states.

ADAM SHAPIRO: And what is it they say about New York and New Jersey? Never met a tax they didn't like. Dan Geltrude is Geltrude and Company founder, also the author of "Positive Financial Karma." Good to see you, my friend.