2011 Employee 2% Payroll Tax Cut Holiday For Social Security and Medicare. Making Work Pay Credit Not Extended

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As part of bush-era tax cuts extension legislation (Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010), a number of new tax breaks were made available. One was a temporary one year cut in employee payroll taxes, which funds Social Security and Medicare, of 2% during 2011. The current rate is 6.2%, which will be 4.2% of wages paid next year, and equates to a $1000 saving for the average American employee.  Employers and payroll companies will typically handle the withholding changes, so workers shouldn’t need to take any additional action, such as filling out a new W-4 withholding form. Employers have until January 31, 2011 to implement the new payroll tax rates, and make any necessary adjustments or corrections by March 31, 2011.

The payroll tax break, which in essence is another economic stimulus payment, has been provided to help workers and spur business hiring.  The employer tax rate for social security remains unchanged at 6.2%. The 2011 social security wage base limit is $106,800. In 2011, the Medicare tax rate is 1.45% each for employers and employees, also unchanged from 2010. There is no wage base limit for Medicare tax. The reduced Social Security withholding as a result of the payroll tax cut will have no effect on the employee’s future Social Security benefits.

Further, the Making Work Pay tax credit expires on December 31, 2010. As a result:

–  The income tax withholding tables for 2011 will no longer be adjusted for the Making Work Pay credit.

– There is no longer an optional additional withholding adjustment for pensions.

– The procedure for withholding on wages of nonresident aliens has been modified

The IRS has also released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011. The IRS will also publish the official 2011 Federal tax rates and brackets in a few days which incorporates the above changes and encourage you to subscribe (free) to get the latest news.

Source: IRS Notice 1036

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15 Comments on "2011 Employee 2% Payroll Tax Cut Holiday For Social Security and Medicare. Making Work Pay Credit Not Extended"


[…] stimulus package to further pump up the economy in 2011 and 2012. Economists are predicting the new stimulus will add between 0.2 to 0.5% to GDP, driving the expected 3% growth next year. This alone won’t […]

[…] and 2012, is likely to expire on December 31st along with a slew of other tax cuts. The so called payroll tax credit dropped an employees payroll withholding rate for social security taxes to 4.2 percent from 6.2 […]

[…] they are liable for both portions)  The employee Social Security tax rate of 4.2 percent is only temporary and will return to 6.2 percent in 2012 unless a proposed extension is […]

[…] to 4.2% (10.4% for self-employed) under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Based on the 2011 social security wage base limit of $106,800, this was a saving worth up […]

[…] Continuation of the current payroll tax cut. The cut, which cost $112 billion so far, allows employees to pay 4.2% instead of 6.2% on their […]

[…] end of this year and the President will urge Congress to extend this tax break. The 2% payroll tax equates to a $1000 saving for the average American employee.  The president will also push to get […]

[…] said: ….steps that can be taken right away to spur economic growth such as extending the payroll tax cut and unemployment insurance. Specifically, we should extend the payroll tax cut as soon as possible, […]

[…] A number of people have noticed changes in their paychecks this month as result of the 2% payroll tax cut and expiry of the Making Work Pay tax credit. While the Obama administration had touted the […]

[…] by andys2i President Obama is scheduled to release his fiscal 2012 budget next month following a very fiscally active 2010. The president’s budget does not have the force of law and mainly functions as a political and symbolic statement of his priorities and an assessment of the economic outlook for the coming year. Like his 2011 budget Congress has to review/approve the majority of proposals and in a number of cases they do not get passed. Case in point, the making work pay credit extension for 2011 and 2012, which was instead replaced by the 2% payroll tax cut. […]

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[…] The 2% payroll tax cut and making work pay credit impacts have been reflected in the latest tax […]

Gail
Tuesday 11:28 am

Found this at CNN: Individuals making $100,000, who didn’t qualify for Making Work Pay this year, will see a $2,000 bump in take-home pay for the year. For couples at that income level, who did qualify, that $2,000 bump will represent a $1,200 increase over the money they received under Making Work Pay.

For people making less than $20,000 (or couples making less than $40,000), they may actual see a drop of about $210 on average in their take-home pay relative to this year, because the payroll tax break will be worth less to them than the Making Work Pay credit was. So in effect the poorer folks are getting hit harder! Once again.

[…] social security payroll taxes = More money in your paycheck. The employee payroll tax, which funds Social Security and Medicare, would also be cut by 2% during 2011 to help spur […]

[…] to claim the credit, The IRS has also released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will use during 2011. The IRS will […]

John
Monday 11:07 am

Here’s an easier way to figure the payroll deduction: For every thousand dollars in wages per paycheck up to the cap, one would only have $42 withheld (4.2% x $1,000), rather than $62 (6.2% x $1,000). So for someone on $50,000, the savings would be $20 * 50 = $1000.

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