On the day before Christmas, 2011, December 24, Congress voted to extend the heavily debated Social Security payroll tax deduction, though only for the first two months of 2012. So congress will shortly be trying once again to come to a longer-term agreement for the “temporary” payroll tax cut deduction.Specifically, the tax cut, which existed throughout 2011, reduced the tax rate that employees pay for Social Security from 6.2% to 4.2% up to the Social Security threshold of about $110,000. (Employers continue to pay their 6.2% share of employee earnings.) For an employee making $100,000 a year, this would save about $2,000 in taxes; an employee earning $50,000 a year would see $1,000 in savings. Understandably, the majority of workers who are paying lower payroll taxes are happy about the deal.
David A. Pace, CFA
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