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19755 East Pikes Peak Ave, Suite 101, Parker, CO 80138

19755 East Pikes Peak Ave, Suite 101, Parker, CO 80138

Payroll Tax “Holiday” – Social Security Only

01/10/2011

A client called today positive that she had found a glitch in QuickBooks payroll software — the Social Security deducted at the employee level did not equal the Social Security calculated for the employer.  Yep, I told her, it is right.

Here is the deal.  For 2011 ONLY, Congress decided to allow wage earners and the self employed to have a reduction in Social Security rates.   Employees and the self employed have been paying 6.2% on their wages for Social Security for twenty-one years.  For this payroll year only, the rate has been dropped to 4.2%.  Employers will continue to pay 6.2%.  The self employed person will pay a total of 10.4% for the Social Security portion of self employment tax (they had been paying 12.4%).   The upper limitation for both 2010 and 2011 is $106,800.  There is no Social Security burden on the amount one earns over $106,800.  Thus, for 2010, the maximum SS tax you would have paid was $6,622.  The maximum you will pay in 2011 is $4,486–a savings of $2,136.

Medicare remains the same — 1.45% for the employee and 1.45% for the employer with no wage limitation.

Here is a thought – Do not get used to having this extra money, since it is a one-year-only deal.  Instead, fund your emergency savings or your 401(k).  It is a windfall for a year.  Good idea to treat it that way.  It is highly likely that Social Security taxation will go up in the near future, so you may need those emergency savings to make ends meet down the road.

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