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This year you may have been blissfully enjoying an increase in your paycheck without realizing it. Remember the Tax Act of 2010? One of the provisions in that little gem of legislation was to reduce the Social Security withholding amount for the calendar year 2011 by 2%. This means that you’re only having to pay out 4.2% for Social Security tax during the 2011 tax year – and next year you’ll back back in the 6.2% world.
But that’s not where it stops. There is another increase in the offing for 2012: the tax wage ceiling is scheduled to increase as well, from the $106,800 level that it’s been at for the past two years, to an estimated $110,100. This means that if you’re at the top of the wage base, your withholding and employer portion of Social Security tax will increase from $11,107 in 2011 to $13,652 in 2012 – an increase of more than $2,500.
This increase is most impactful for the self-employed, since we lucky ones have to pay both sides of the Social Security tax on net self-employment income.
So – just don’t forget as you’re planning your income and expenses for the coming year, withholding is going to be a little more in 2012 than it has been this year.
That’s all for now. You can go back to what you were doing. :)
Sterling Raskie, MSFS, CFP®, ChFC®
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2% is a pretty hefty increase, I am not a big fan of raising taxes during an economic recovery.
i understand that the Social Security system has a budget crisis, but maybe they should wait until the economy recovers to raise the Social Security tax.
Well, technically it’s not an increase. It’s a restore of the former level of tax, with 2011 being a reduced withholding year. Chances are there may be some talk of extension if the economy hasn’t recovered more later in the year…
jb