Get out the party hats and streamers: After an acrimonious debate in Congress, our nation’s lawmakers have extended the “payroll tax holiday” for the remainder of 2012.
The tax cut was first enacted as a one-shot deal for 2011. Under a provision in the 2010 Tax Relief Act, the usual 6.2% Social Security tax rate for employees was reduced by two percentage points to an effective?4.2% rate on wages up to the?Social Security ceiling ($106,800 in 2011). The self-employed got a comparable tax break. The usual 1.45% Medicare portion of the payroll tax (2.9% for the self-employed) continued to apply to all wages.
In a last-ditch effort at the end of 2011, Congress enacted compromise legislation that kept the payroll tax holiday in effect through February 2012. And now, after weeks of wrangling and political grandstanding, Congress has approved a further extension through the end of the year on amounts up to this year’s wage base of $110,100.
For example, if earn $100,000?in 2012, you will save $2,000 in payroll tax (2% of $100,000). The maximum tax savings is $2,202?(2% of $110,100).
Glad to have more money in your pocket? Don’t squander your tax savings on frivolities or extravagances you don’t really need. A better move is to use this extra cash for a sound investment or to bolster your retirement savings.
