What is the Social Security tax rate for 2011?
If you are an employee, you know that part of your paycheck goes towards payroll taxes. A big chunk of those taxes go towards Social Security to pay for retirement and disability benefits to people who qualify.
The Act that requires employers to withhold Social Security taxes is the Federal Insurance Contributions Act (FICA).
The Social Security tax rate was reduced by two percent in 2011 only so employees pay only 4.2% in Social Security taxes.
For many years, the Social Security tax rate has been 6.20% of your gross wages, up to the Social Security wage base. However, in 2011 the amount was reduced to 4.2% for employees (the employer share is still 6.2%).
This reduction in the Social Security tax rate will result in hundreds to thousands of dollars in tax savings in 2011, depending on how much you earn. For example, people who make $30,000 will save $600, people who earn $60,000 will save $1,200, and people who earn $100,000 will save $2,000 in Social Security taxes in 2011.
The maximum wages that you have to pay Social Security tax on is $106,800.
There is a maximum limit on the Social Security tax portion, called the wage base. In 2011 the wage base limit is $106,800, which means that you will only pay Social Security taxes on the first $106,800 of wages you earn.
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In addition to Social Security taxes, you must also withhold taxes for Medicare. The amount is 1.45%; this amount did not change for 2011. There is no maximum wage limit for the Medicare taxes.
The combined tax rate for the two federal programs is 15.30% (7.65% paid by the employee and 7.65% paid by the employer). In 2011, the combined tax rate is only 13.30% because of the reduced Social Security rate for employees only.
What if you are self employed?
If you are self employed, you must pay both the employee and the employer share of payroll taxes. However, half of the taxes are deductible from your income when you calculate your federal income tax. Also, you get the reduced rate for the employee portion, so the combined rate, which is normally 15.3% is only 13.3% for 2011.
How long will we get the reduced 4.2% rate?
The Act that reduced the Social Security rate for employees in 2011 is called the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. Without further legislation the Social Security tax rate for employees will return to 6.2% in 2012.
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