Things to Think About Before Taking the Tax Holiday
As we enter the later part of this year, many of us are still navigating the economic impact of the global pandemic. Whether you are facing a reduction in income, or your short or long-term goals are in flux, it is important to make financially sound decisions now and understand the potential outcomes they might bring later. Here are a few things to consider and better understand as we all continue to strive forward.
Understanding the Tax Deferment “Holiday”
In August 2020, an executive order was signed allowing the deferment of government payroll taxes for those earning a wage of $4,000 or less bi-weekly. This deferment if elected would last from September 1st though the rest of this calendar year. Now as great as that sounds, please consider a few things before making the decision to participate.
How much extra will you actually be taking home?
If you are considering participating in the deferment of your payroll tax you should first take a look at your most recent pay stubs and evaluate the additional income that you will be bring home and ask yourself; will this extra money keep me financially afloat? Does this extra money help towards keeping me from facing eviction or foreclosure? How would this affect my finances in the long run?
How would repayment look in your spending plan?
One of the biggest stipulations to remember during this tax holiday is that this is something that would have to be repaid. During the months of January through April 20201, any unpaid payroll tax would be collected upon during that time. Although the extra cash may seem beneficial now, it is imperative to think of how the repayment will fit into your budget later. You want to be careful about making a financial decisions now that can put you in an even greater bind later.
Is there a way to financially make things work without participating?
When you are facing hardship, any solution to bring relief feels like a good choice. It is important however to weigh out all possible options before making any impulsive decisions with your finances. Before deciding to take a tax holiday, take a look at your current monthly budget or spending plan and see how those extra funds are needed, or if you are able to make adjustments in other places. As you do this, remember that this holiday is only until the end of the year. It’s important to remember that so you’re careful not to make permanent budgeting changes that you will not be able to maintain later. And as stated before, these funds are going to have to be repaid. So if you find that you are leaning towards participating, while you’re evaluating your budget, factor in what your repayment could look like later.
If you are facing a financial hardship, or would like a review of your current spending plan, we are here to help. Contact your local branch @ 804-274-1200 or one of our Certified Credit Counselors today to get started.
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