Some readers may be thinking that their paychecks will be going up now that Donald Trump signed an executive order ordering a payroll tax holiday for everyone. What Trump has ordered is a 6.2% payroll bump in your paycheck starting on September 1. The order says it will last until December 31. What this means is that if your paycheck is $1,000, you should see $62 additional dollars in your check.

But as they say, the devil is in the details.

First let’s discuss where the $62 per $1,000 comes from. It comes from the Social Security withholding on your paycheck. You pay 6.2% and your employer pays another 6.2%.

Now let’s look at what the Trump order says.

Sec. 2. Deferring Certain Payroll Tax Obligations. The Secretary of the Treasury is hereby directed to use his authority pursuant to 26 U.S.C. 7508A to defer the withholding, deposit, and payment of the tax imposed by 26 U.S.C. 3101(a), and so much of the tax imposed by 26 U.S.C. 3201 as is attributable to the rate in effect under 26 U.S.C. 3101(a), on wages or compensation, as applicable, paid during the period of September 1, 2020, through December 31, 2020.

Lot’s of mumbo jumbo but basically it says to stop withholding 6.2% of your paycheck. “Deferred” is an important word to remember as we explore this further.

But first let’s look at a little bit more of the order:

(b) Amounts deferred pursuant to the implementation of this memorandum shall be deferred without any penalties, interest, additional amount, or addition to the tax.

This just says that if your employer is not withholding the 6.2% you are not to be penalized for not meeting your payroll tax obligation timely. Taxpayers are expected to make payments to the IRS throughout the year to cover their tax obligations. Usually this is done by your employer each time they withhold taxes from your paycheck.

So, don’t worry, you are not going to get penalized for not making a timely payment. But the section, itself, betrays the problem with Trump’s order.

Remember the word, “deferred”?

Note that it does not say “forgiven” but instead it uses the term “deferred”.

The reason is that your 6.2% tax obligation is not erased, but just deferred to a later date.

Let us see what this means to you. Let us assume that you take home $3,000 a month. For September, October, November and December that would be $12,000. Under Trump’s order, it means that your paychecks would have an extra $744 for that period.

But, and here is the but, you still owe the $744 to the government.

Read the rest of Trump’s order:

Sec. 4. Tax Forgiveness. The Secretary of the Treasury shall explore avenues, including legislation, to eliminate the obligation to pay the taxes deferred pursuant to the implementation of this memorandum.

That’s right, the Trump order has not forgiven your tax obligation, it has just deferred it without penalties.

You still owe the money. If and until the government finds a way to forgive the tax money, you still owe it. It is unlikely it will be forgiven because Congress is the only one that can forgive the tax. This is made clear by Trump’s order where he asks his staff to “explore avenues” to “eliminate” the obligation.

Remember this when you start seeing that small bump on your paycheck. It may be tempting to spend it but what are you going to do when the taxman comes knocking on your door?

The truth is that for most readers the small amount will just be deducted from any tax refund they have coming to them. For others, they’ll to pay it out of pocket.

Regardless and it is important that you must remember that you still owe the money.

Martin Paredes

Martín Paredes is a Mexican immigrant who built his business on the U.S.-Mexican border. As an immigrant, Martín brings the perspective of someone who sees México as a native through the experience...