Taxpayers got a pleasant surprise when they opened there paychecks this January: more take home pay. The federal government enacted many changes to the tax laws in December of 2010. While much of the media and national attention was focused on income tax rates, estate tax rates, and unemployment benefits, the government also announced that it was lowering the amount workers pay into the Social Security trust fund for 2011 from 6.2% to 4.2%. For the remainder of the year, employees will pay only 4.2% of the first $106,000 of their taxable earnings in Social Security tax. Just as in 2010, there is no Social Security tax owed on earnings above $106,000.
For those who are self-employed, the Social Security tax rate has dropped from 12.4% to 10.4%. However, employers will continue to pay 6.2% in Social Security taxes throughout 2011.
The changes to the Social Security tax replace the Making Work Pay tax credit that expired at the end of 2010. For many workers, the new Social Security tax rates will provide more benefit than the Making Work Pay tax credit. The Making Work Pay tax credit was only $400 per tax payer, subject to certain limitations. The new Social Security tax rates will provide an extra $200 for each $10,000 an employee earns, up to the $106,000 cap. Those making more than $20,000 a year will be better off under the new law. Unfortunately, those who make less than $20,000 a year will get less tax relief than they received through the Making Work Pay tax credit.
The attorneys at Kohler & Smith Co., LPA help their clients navigate the constantly evolving tax laws. Call (614) 888-4911 today for help with all of your tax planning and tax preparation needs or check out www.kohlersmith.com.