Payroll Tax Cut 2011

December 26, 2010

The payroll tax cut comes as part of the federal tax cut extensions that address the Bush tax cuts which were ending.  To make up for the expiring Making Work Pay tax credit, the 2011 payroll tax cut reduces the amount you contribute to Social Security by 2% next year. It won’t impact your federal income tax bracket but it will increase your paycheck on the first $106,800 you earn.

Payroll Tax Cut Tips

After the IRS announced the payroll tax cut the Wall Street Journal put out a summary of the tax cut.  Some are calling it a holiday rather than a cut because it’s only temporary.  Regardless of how many years it lasts for Smart Money magazine and the New York Times offered up some suggestions on what you can do with the money from the payroll tax cut

Payroll Tax Holiday Challenges

The payroll tax break could be a challenge for accounting departments.  Since the taxes are withheld from your paycheck by your employer, they will have to make quick changes to update the amount of the the payroll taxes withheld.  The IRS has given accounting departments until the end of January to put the payroll tax rates into place.  If there are any issues with the wrong amounts being withheld, your employer has until the end of March to make necessary corrections.

Another issue is the question of what the decrease in contributions will do to the Social Security system.  We’re already worried about Social Security running out of money as baby boomers start retiring in mass, some are worried because a payroll tax cut holiday only makes the issue worse.

Payroll Tax Rates

So how much can the payroll tax cut save you?  It depends on how much you currently earn but as an example if you earn 50,000 a year, your paycheck should go up by $83 a month.  If you make 100,000 a year then you’ll see an extra $167 each month in your check.  Kiplinger created a payroll tax calculator to make it easy for you to figure out what the benefit will be to you.

The maximum benefit for a single earner is a $2,136 a year.  For a married couple both working, the maximum annual benefit is $4,272.  If you’re self employed, you can reduce estimated tax payments to account for the payroll tax cut.


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Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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9 Responses to Payroll Tax Cut 2011

  • Jason

    You need to edit this article as the verbiage is very misleading. It applies to everyone not just to those who earn under 106,800. It applies to the first 106.800 and then doesnt get taxed again until the following year.

  • The Penny Hoarder

    I’m looking forward to my bigger paycheck next year.

    @Joe Plemon – It’s my understanding that the SS fund will be given $ from the federal budget to make up for the shortfall. The trust fund won’t see any change in funding from the tax cut.

  • Joe Plemon

    I can understand extending the Bush Tax Cut, but to give everyone a 2% temporary holiday at the expense of Social Security, which doomed for failure, doesn’t make sense. I agree with LIanne (above) that future SS benefits could be sacrificed.

  • Lianne

    what I’m worried about is how will it affect my collecting social security when I’m ready.


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