Our political leaders have finally got around to extending the payroll tax holiday to the end of 2012. That means for the rest of 2012 the employee social security rate will be 4.2% (2% lower than the normal rate). For the self-employed the social security portion of the self-employment tax remains at 10.4% rather than the normal 12.4%.
The original social security payroll tax holiday ran in 2011 and replaced the Making Work Pay tax credit that was available in 2010. Late in 2011 Congress agreed to extend the holiday until the end of February 2012 and now with two weeks left they have extended it until the end of December 2012.
For different earners the monthly impact is:-
The monthly amounts are what you are keeping in your pocket as a result of the social security holiday. If the holiday is not extended beyond the end of 2012 these are the amounts that will not be available for you to spend so bear this in mind if you are making financial plans for 2013.
The 2% recapture tax that was introduced in December 2011 has been repealed and does not apply now.
The extension of the payroll tax holiday was not funded by Congress and will add to the deficit. So enjoy this extra money in your pocket whilst it lasts as eventually it will more than likely be taken back to fund the deficit.
Posted by Mark Smith a tax preparer with over 28 years tax and accounting experience. He is the owner of Cranmere Accounting and Tax Services LLC and can be contacted on (480) 363-4808 or by email at firstname.lastname@example.org.
Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.