What Happens to Social Security Payroll Tax in March?
On December 23, 2011 Congress passed a two-month Social Security payroll tax cut extending through February 2012 using the 2011 tax rates. However, as March rolls around, taxpayers earning a salary will see a slight reduction in their paychecks even if their salary remains the same. As of now, the Social Security tax rate for the remainder of 2012 will increase to 6.2% for employees as opposed to 4.2%. Self-employed individuals will incur a Social Security tax rate of 12.4% instead of 10.4%. Additionally, the wages subject to Social Security tax is increasing from $106,800 to $110,100, marking the first increase since 2009.
Under the terms negotiated by Congress, this extension includes a new 2% ‘recapture’ provision, which applies only to those employees who receive more than $18,350 (which is the prorated portion of the $110,100) in wages during the two-month period. However, this provision will only apply if the payroll tax reduction is not extended for the remainder of 2012. And if you make more than $110,100, don’t forget any excess is free from Social Security taxes.
As for self-employed individuals, estimated tax payments may need to increase for 2012 to account for the increase in self-employment tax. Consult with your personal accountant to make proper estimated payments to avoid a surprise tax penalty at the end of the year.
Anders will pay close attention to keep individuals aware of future legislation changes.