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What is a payroll tax holiday?

In essence, the deferral is an interest-free loan that would have to be repaid.

BEDMINSTER TOWNSHIP, N.J. — President Donald Trump signed an executive order Saturday afternoon that would defer the employee portion of the payroll tax from Sept. 1 through the end of the year.

The move would not directly aid unemployed workers, who do not pay the tax when they are jobless, and employees will need to repay the federal government eventually without an act of Congress, where there is bipartisan opposition on Capitol Hill.

In essence, the deferral is an interest-free loan that would have to be repaid. Trump said he’ll try to get lawmakers to extend it, and the timing would line up with a post-election lame-duck session in which Congress will try to pass government funding bills.

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“If I win, I may extend and terminate,” Trump said, repeating a longtime goal but remaining silent on how he'd fund the Medicare and Social Security benefits that the 7 percent tax on employee income covers. Employers also pay 7.65 percent of their payrolls into the funds.

Under the executive order:

"The deferral shall be made available with respect to any employee the amount of whose wages or compensation, as applicable, payable during any bi-weekly pay period generally is less than $4,000, calculated on a pre-tax basis, or the equivalent amount with respect to other pay periods.

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

“This fake tax cut would also be a big shock to workers who thought they were getting a tax cut when it was only a delay," said Democratic Sen. Ron Wyden of Oregon. "These workers would be hit with much bigger payments down the road."

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