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I posed a question on Twitter a few weeks back:
Are the new unemployment benefits (extra $600 per week) unfair to “essential workers” who don’t get the extra funds AND have to keep working?— Jacob Wade (@iHeartBudgets) April 9, 2020
Apparently Mitt Romney heard me, because a few short weeks later, he introduced Patriot Pay.
This refundable payroll tax credit would pay “frontline” workers (who earn under $90,000) up to an additional $12/hour.
Romney calls it a “form of hazard pay”, as these essential workers are risking exposure by going out to work every day.
And his main reason for Patriot Pay is this:
“As unemployment lines grow longer, these patriots continue to return to work the next day, some even making less money than they could on unemployment insurance.”
Just like my tweet above, Romney sees the disparity in the enhanced unemployment and the frontline workers who are not earning as much.
I want to break down ALL the details of this Patriot Pay proposal to see who would qualify, how much they could get paid, and when these benefits could kick in.
How Does Patriot Pay Work?
The pay would come in the form of a refundable tax credit to employers. This means that employers would hang onto funds that would NORMALLY go toward payroll taxes, and instead distribute those funds directly to workers.
Payroll tax credits have worked in the past, and were even included in the FFCRA that helped business start including Sick Pay for all workers affected by coronavirus.
And if employers payroll expenses go beyond their tax liability, they can apply for an immediate tax refund for the difference, and if the IRS follows suit from the FFCRA, employers could receive these refunds within a few weeks.
How Much Will Patriot Pay Give To Workers?
Here’s a quick breakdown of how much you could get paid if this is added to a new stimulus bill:
- “For essential employees that make less than $50,000 annualized, employers would receive a 75% refundable payroll tax credit for a bonus up to $12 an hour.
- For essential employees making over $50,000 annualized, the tax credit phases out by $24 for every additional $500 in income until annualized incomes hit $90,000.
- The maximum tax credit is $1,440 per month, per employee, meaning a full-time worker would receive up to a $1,920 monthly bonus.”
Here’s a few examples of what this could look like:
Example 1 (from Romney’s Proposal): “A grocery store in Provo, UT could opt into Patriot Pay to give their workers a $12/hour bonus. The employer would contribute $3, while the federal benefit would add $9, meaning a $10/hour worker would receive a $5,760 bonus from May 1 through the end of July. The grocery store worker’s weekly paycheck would include an extra $480.”
Example 2: A hospital opts into Patriot Pay, and pays a worker making $30/hr. (average $64,000 annually) a $10 an hour bonus. The tax credit is reduced by $672 over the 3 month period ($24 * 28) since they earn $14,000 more than $50k. So the employer would contribute $3.90 while the federal benefit would add $6.10. The $30/hour workers would earn up to $4,800 bonus from May 1 thru the end of July. Their paycheck would increase by $400 per week.
Yes, the math is a bit complicated, but the idea is to reward workers who are at risk, and take most of the burden off employers who offer this bonus.
Would My Raise Be Automatic?
Patriot pay is something businesses would have to ELECT. Meaning if this passes, it doesn’t force companies to give these pay raises to their workers.
Second, the employers would have to contribute 25% of the additional funds, and the remaining 75% would be a refundable payroll credit. So employers would need to be OK with temporarily raising wages during this time.
Plus, employers that pay their workers over $50k/year would lose some of the credit ($24 for every $500 paid over $50,000), creating less of an incentive to give the bonus.
Who Qualifies For The Patriot Pay Tax Credit?
Not all businesses that are open would qualify.
This proposal states that “Congress and the Department of Labor would designate critical industries including, but not limited to, hospitals, food distributors and processors, and health manufacturers“
And of these qualified employers, each employer would need to certify and, in fact, the employee is “working in conditions that increases their risk of COVID-19 exposure“.
And once those qualifications are met, the tax credit would only apply to workers who work AT LEAST 100 hours each month that they receive the bonus.
So this would NOT benefit part-time workers, or those with reduced hours. Since the average working month has about 160 hours (4 hours x 4 weeks), if you were working, say 24 hours a week, you might not qualify.
When Would Patriot Pay Start?
Obviously, this is still just a proposal, and needs to be voted into law, but the proposal has specified dates on when it would apply.
“Eligible employers would qualify for tax credits for employee bonuses provided between May 1 and July 31, 2020“
The bonuses would be added to each worker’s paycheck, and then payroll tax credit would be available immediately, using the same streamline claim form from the FFCRA (IRS Form 7200).
The proposal also states:
“Congress should also provide the IRS the authority to partner with payroll companies who may be able to more quickly advance the credit.“
So the goal is to incent employers as quickly as possible to get funds into the hands of their essential workers.
Will Patriot Pay Actually Pass?
Trump himself said he is fond of stimulus proposal that are paid in the form of a payroll tax credit.
“I like the idea of payroll tax cuts, I have liked that from the beginning, I think frankly it’s simple, it’s not the big distribution.”1
This proposal will likely be debated for inclusion in the next round of stimulus payments, like a CARES Act 2.0. And even Democrats have proposaed some form of “hazard pay” to frontline workers, so it might gain some traction.
But of course, proposals are just an idea, and will need to be received, debated, and re-written for inclusion on a final bill before becoming law.
At this point, it’s anyone guess on whether it will get passed or not.
1. Details found in this article on The Hill