You may have heard that the 2% Social Security payroll tax cut was extended through the end of February in a last minute move by Congress last year. Well, surprisingly Congress made a quick and early (for them) decision to extend the tax break through the end of 2012.
If you’re not familiar with the payroll tax cut here’s a quick overview:
In 2010, Congress passed a payroll tax holiday which reduced the amount of Social Security tax paid by employees by 2%.
As an employee, you are aware that you have taxes withheld from your paycheck. A portion of those taxes are for federal, state and local income taxes (depending on where you live, you may not have all of these), but a large portion of your tax withholding is for Social Security and Medicare, also called FICA. FICA taxes are paid by both employees and employers. In 2010, the amount was 6.2% for Social Security (on income up to $106,800) and 1.45% for Medicare, for a total of 7.65% each.
At the end of 2010, the amount of Social Security tax for 2011 was reduced by 2% to 4.2% for employees only (employers are still required to pay 6.2%). No changes were made to Medicare or to federal, state or local income taxes.
This 2% payroll tax reduction was created to help boost the economy and was intended to be for 2011 only. However, since the economy has grown slower than expected in 2011, President Obama called for an extension into 2012. After long debate and many delays Congress extended the payroll tax cut for the first two months of 2012. On February 17, 2012, they extended the tax break again, this time for the remainder of 2012.
You can read more about the 2012 payroll tax cut here:
Updated at 2:58 pm ET – By a vote of 60 to 36, the Senate passed a bill Friday to keep the Social Security payroll tax at its lower 4.2 percent rate and to extend unemployment benefits. Republican leaders were split on the …
There has been a lot of concern that the payroll tax cut will hurt Social Security as you can see in the following articles:
WASHINGTON — Sen. Tom Harkin slammed his own president and party for hatching the payroll tax cut deal that is expected to pass Congress Friday, saying he’s “embarrassed” the Democrats are pushing a measure that begins the “unravelling of Social Security.
Tom Harkin (Iowa) have come out with strong criticism of the bill that would extend the payroll tax holiday that was started in 2011. Hoyer says he will vote against the bill because it cuts pensions for government workers: …
The North Coast’s two Democratic Congress members resisted the tide of bipartisan support for renewing a Social Security payroll tax cut Friday, voting against the main legislation on President Barack Obama’s jobs agenda.
What are your thoughts on the payroll tax cut? Is it more important to keep taxes low while the economy recovers, or is it more important to keep Social Security solvent?