1 1 (March 20, 2020)

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               Researh Sevice

COVID-19 Economic Stimulus: Business

Payroll Tax Cuts

March 20, 2020
The economic fallout from coronavirus disease (COVID- 19) has accelerated rapidly. Policymakers
continue to evaluate tax policy economic relief options. Payroll tax cuts for businesses are one option that
would provide economic assistance to business activities.

Business Payroll Taxes
Payroll taxes are collected to finance certain entitlement programs, including Social Security, parts of
Medicare, and Unemployment Compensation (UC). Social Security's old age, survivors, and disability
insurance (OASDI) payroll tax is paid by both employers and employees, and it finances the Social
Security trust funds. The tax equals 6.2% of wages on the taxable earnings base ($137,700 in 2020). This
tax is paid by both employers and employees (with self-employed individuals paying both the employer
and the employee share, or 12.4%). The primary source of funding for Medicare Part A is a separate
payroll tax paid by employers and employees. Each pays a tax of 1.45% on the employee's earnings; the
self-employed pay 2.9%.
Employers typically deposit payroll taxes with the Internal Revenue Service semiweekly or monthly, and
report employment taxes paid on quarterly federal tax returns filed no later than 30 days after the end of
the calendar quarter. Some employers with small payrolls may file annually.
Employment payroll taxes generally are paid by all types of employers: businesses, nonprofits, and
government employers. Thus, tax relief that is provided through payroll tax reductions may be available
to nonprofits, which generally do not benefit from income tax reductions.
If maintaining Social Security or Medicare Part A trust fund balances is a policy objective, these funds
can be made whole through a transfer of general revenue. In this case, the revenue loss from a payroll tax
cut would add to the deficit, but not decrease amounts available for Social Security or Medicare benefits.
Temporary cuts to payroll taxes enacted in past recessions have protected trust ,finds from any impact in
such a manner.

                                                               Congressional Research Service

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