[UPDATED 9.10.20]
It’s almost that time again… time to make your third quarter estimated tax payment to the IRS (and to your state, if it does that). Despite COVID and everything else, the IRS is still expecting you to make your payment by September 15, as usual. That’s next Tuesday.
This year, though, there have been twists every quarter. First there was a deferral for first quarter 2020 payments and payments for any taxes owed from 2019. Then, you had to pay all those taxes as well as your second quarter estimated taxes in July. Now, the Mango Mussolini has declared that all workers, including the self-employed, can skip paying payroll/self-employment taxes, for now.
For the self-employed, not having to pay 15.3% (self-employment tax is both parts of FICA) sounds fabulous! But, contrary to the spin on this move, this is not a good thing.
What isn’t being made really clear is that this is only a deferral of the payment of those taxes, not that you won’t owe them eventually. Trump claims he wants to make these cuts permanent, but that would gut Social Security and Medicare and be incredibly harmful to people who already rely on those systems as well as those of us who haven’t yet aged into them. It is not likely to ever get approval even by his henchmen in Congress, but if he stays in power, he intends to do just that. See this article for more of the gory details.
Also, it may not actually apply to self-employed people, as this article points out, and it starts September 1, so no one seems to know if that means you still need to pay the whole thing for this 3rd Quarter payment or not (my bet is yes, you do).
For the average creative worker, cashflow is probably a big issue right now; so taking the deferral will be very, very tempting. Although I am not a CPA (at all!), I would counsel against giving in to that temptation, if you can. There is an old saying: money now is cheaper than money later. In this situation, paying your full boatload of taxes now rather than taking the deferral is going to save you heartache, bookkeeping hell, and the need to somehow come up with more money later when you might not have it.
For those of you who are employees, you might consider asking your employer NOT to defer withholding your FICA payments. It’s all going to make for real bookkeeping nightmares down the line but, just like for the self-employed, better to have that money already paid than to have to come up with the tax equivalent of a balloon payment later.
Times are tough for so many of us and it is easy to be seduced into making short-term choices that hurt in the long term. This scheme is just such a seduction. Don’t be fooled. Cut back on other things (like Netflix, etc.) if you need to, but pay your tax bill in full next week, if you possibly can.