Social Security Payroll Tax Reduction for 2011
68As part of President Obama's compromise plan with Republicans to extend the Bush tax cuts for two more years in return for extending unemployment benefits, there is also a proposed a decrease in the social security payroll tax paid by individuals for 2011.
Social Security Payroll Tax Amount and Wage Base
The Social Security Payroll tax for employees (working for employers and receiving a W-2) consists of 2 parts: 6.2% paid by employees (workers) and 6.2% paid by the employers, for a total of 12.4%.
The tax is paid only on the social security wage base, which is the maximum amount that is of salary/wages taxed for an individual. For 2010 and 2011, the social security wage base is $106,800. What this means is that in 2010, an individual only pays the 6.2% tax on the first $106,800, which results in a tax of $6,621,60. Wages above $106,800 are not subject to the SS payroll tax.
Decrease in Social Security Payroll tax for 2011
As part of the extension of the Bush tax cuts, there is a proposed decrease in the SS payroll tax portion paid by individuals of 2%, which would lower the tax from 6.2% to 4.2%. This is proposed for 1 year only, 2011. Since the payroll tax is deducted from a worker's paycheck before he receives it, this would result in an increase in a worker's take home pay for the 2011 calendar year.
For example, a worker earning $50,000 per year would pay $2,100 in 2011 (4.2% of $50k) vs. having paid $3,100 in 2010, for a net decrease in taxes paid over the year of $1,000.
For a worker making the maximum SS wage base of $106,800, the 2011 payroll tax would be $4,485.60 (at 4.2%) vs. $6,621.60 (at 6.2%) for a yearly decrease in taxes of $2,136.
What about Self-Employed or Non W-2 Employees?
Self employed workers, and those who work as contractors and do not receive a W-2 from their employers are responsible for paying both parts of the SS payroll tax, the worker's 6.2% part and the employers 6.2% part in 2010, for a total of 12.4%.
While it is not totally clear what will happen under the proposed reduction for 2011, it is expected that the employee/workers portion will be decreased by same 2% making the total 10.4% in 2011, the employer's portion is expected to remain the same.
OpinionDuck 14 months ago
RC
That is OK but it doesn't tell us how the government is going to factor that into the SS benefits. Will there be a reduction in benefits to compensate when those that are contributing it, retire.
After all is said and done, SS is just a TAX
As an Independent Contractor, I always thought that it was ridiculous to pay the employer's part of SS. It is a business of one, and you can't even get unemployment insurance for yourself as an employee.
The Medicare tax is has no ceiling.