As you may know, there is a temporary 2% payroll tax cut in 2011. Instead of the normal 6.2% Social Security tax on gross wages up $106,800 for employees, it is only 4.2%. This is supposed to be reflected automatically in your paycheck, so most people’s paychecks this year should have been a little bit bigger. I say most because at the same time, the Making Work Pay Tax Credit was expired for 2011. Here’s a chart from the Tax Policy Center showing the net savings from last year for your given income:
A single person earning $50,000 would be paying $600 less in taxes in 2011 vs. 2010. This is the net result of gaining the $1,000 payroll tax cut, and losing $400 from the Making Work Pay Tax Credit of 2009/2010.
The law was passed right around the start of the new year, so according to Consumer Reports so there could have been a mix of under-withholding and over-withholding for the first few pay cycles. Employers had until March 31st to get all the withholding sorted out. It’s pretty late in the year already, but still I just did a quick check to make sure that I am still getting that 2% savings. It just takes a minute – find your paycheck stub, and divide the Social Security line by your Gross Pay line. It should equal to 0.042, or 4.2%.
(Update: It could end up a bit less than 4.2% if you have items that are not subject to Social Security tax, like health insurance premiums or Flexible Spending Accounts. But it shouldn’t be more than 4.2%.)
You’ve been putting that extra money to good use, right?