The Senate's $2 trillion stimulus package designed to contain the economic damage from coronavirus will postpone payroll taxes for employers, a key source of revenue for Social Security and Medicare.
The bill passed late Wednesday will allow companies to pay their 2020 payroll taxes through the end of 2022. They will have to pay 50% by the end of 2021.
The measure stops short of the full nine-month payroll tax holiday called for by President Donald Trump, who pushed Congress to adopt the plan by arguing that it would be the only way to make "a big difference."
"If you want to get money into the hands of people quickly & efficiently, let them have the full money that they earned, APPROVE A PAYROLL TAX CUT until the end of the year, December 31," the president wrote in a post on Twitter earlier in March.
Payroll taxes are paid by both employees and employers and fund major social welfare programs like Social Security and Medicare. Social Security advocates criticized efforts to cut payroll taxes included in earlier drafts of the landmark legislation.
Under current rules, both workers and employees generally pay 6.2% toward Social Security and 1.45% for Medicare, with high-earners kicking in more toward Medicare. Those who are self-employed pay the full 12.4% toward Social Security and 2.9% for Medicare.
Payroll taxes account for nearly a quarter of federal, state and local government revenue, according to the Tax Foundation, an independent nonprofit. Despite the fact that the taxes are technically split in half by employers and employees, in practice, the actual cost of the taxes are borne almost entirely by employees, according to the group.
The Senate legislation, which has been described as the largest rescue bill in history, must be approved by the Democratic-controlled House of Representatives and signed by the president in order to become law. The House is expected to vote on the matter on Friday.