Monday, January 3, 2011

A Tax Holiday to Start 2011?

New law payroll tax holiday - with the recent tax changes that were signed in late December there was a pleasant "tax holiday" for earned income. For remuneration received during 2011, the 2010 Tax Relief Act reduces the employee Social Security tax rate by two percentage points to 4.2%. (Similarly, for self-employment income for tax years beginning in 2011, the combined Social Security tax rate under the SECA tax is reduced by two percentage points to 10.4%.) As a result, for 2011, employees will pay only 4.2% Social Security tax on wages up to $106,800 (and self-employeds will pay only 10.4% Social Security self-employment taxes on self-employment income up to $106,800). This translates to an increase to take home pay for the individual taxpayer of up to $2,136 for the 2011 tax year. So at a glance, this seems to be a nice benefit (I don't want to comment on politics of reducing the funding to the Social Security program by making this change but want to highlight that appears to be the ramification to this "tax holiday".)

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