What is a "payroll tax holiday"?

A "payroll tax holiday" refers to a temporary reduction or elimination of payroll tax withholding from employees' wages. This means that during such a period, employees receive a larger take-home pay because less money is being withheld for payroll taxes. The goal of a payroll tax holiday is usually to stimulate economic activity by increasing disposable income for consumers.

This type of measure is often implemented by governments during times of economic challenge to encourage spending by households. Therefore, the concept centers around a short-term adjustment rather than a permanent change in tax policy, which aligns perfectly with the definition of a payroll tax holiday.

In contrast, a permanent increase in payroll taxes, tax incentives for employers, or additional taxes imposed during specific months do not capture the essence of a payroll tax holiday, as they reflect ongoing tax structures or changes rather than a temporary relief designed to boost the economy.