social security tax reduction

[oceanlovin'ea]

I just read on the IRS news wire that starting in 2011, employees social security tax will be 4.2% instead of 6.2%.
I was shocked! I didn't hear about that being a possibility.

I guess employer's will still pay 6.2%. Is that correct?

Linda

[BOB W]

I just read on the IRS news wire that starting in 2011, employees social security tax will be 4.2% instead of 6.2%.
I was shocked! I didn't hear about that being a possibility.

I guess employer's will still pay 6.2%. Is that correct?

Linda

Yes, 6.2% for the employer.........I have busineses who's bookkeepers will now be very confused. They all use to doubled the employee's SS& Med. By the way, it is only the SS not the Med.

[FEDUKE404]

Self-employed folks?

What, if anything, does this change in Soc Sec tax do to us poor Sch C/Sch SE persons next year??

FE

[gboykin]

You will reduce the Social Security on a Schedule C by 2%

[solomon]

What, if anything, does this change in Soc Sec tax do to us poor Sch C/Sch SE persons next year??

FE

See Sec. 601 (b)(1)

http://www.gpo.gov/fdsys/pkg/BILLS-111hr4853enr/pdf/BILLS-111hr4853enr.pdf

[OtisMozzetti]

Thank you, Solomon.

Solomon, I appreciate your postings. Once again you have lived up to your name.

EA in California

[veritas]

2011 budget deficit 1.2 Trillion

Cost of social security tax cut=112 Billion

[JohnH]

Having a Democrat President's name affixed to a tax cut bill = priceless.

[Peachie]

The way I read it FE,

What, if anything, does this change in Soc Sec tax do to us poor Sch C/Sch SE persons next year??

FE

looks like we are getting no reduction.

(1) DEDUCTION IN COMPUTING NET EARNINGS FROM SELFEMPLOYMENT.—
For purposes of applying section 1402(a)(12) of
the Internal Revenue Code of 1986, the rate of tax imposed
by subsection 1401(a) of such Code shall be determined without
regard to the reduction in such rate under this section.

Am I interpreting this correctly?

[veritas]

this says

looks like we are getting no reduction.

(1) DEDUCTION IN COMPUTING NET EARNINGS FROM SELFEMPLOYMENT.—
For purposes of applying section 1402(a)(12) of
the Internal Revenue Code of 1986, the rate of tax imposed
by subsection 1401(a) of such Code shall be determined without
regard to the reduction in such rate under this section.

Am I interpreting this correctly?

the self employed will compute their deduction without regard to the reduction in self employment tax.

[taxea]

it is only for one year and now there is talk that the employer may have to pay it.

[Snaggletooth]

Rather Obvious

They didn't want to continue the "Making Work Pay" credit through 2011. However, this amounts to some $15/wk in withholding from pay. And this would be the amount irrespective of whether the Bush Tax Cuts were extended or not.

Politicians, presidents, etc. do NOT want withholding increased!! $15/wk is substantial, and they can't take the heat for all the howling that would happen if paychecks dropped.
So they push the pressure onto the Social Security withholding. That way the fiscal imprudence is kicked over into the future Social Security shortages.

Three cheers for Congress on this -- yet another "shell game" to fool the public.

[JohnH]

Great analysis, Ron. In thinking about this some more, it seems that it's a strategy likely to backfire on Washington in 2012. While people will get the extra $15 or so in their paychecks each week, they won't be receiving a tax credit at year-end when their return is filed. That means that everyone will be $400/$800 under water on their 2011 return when comparing withhlding vs income tax liablity. (Either a larger amount due or a smaller refund as the case may be, based on exactly the same income & withholding instructions as in the prior year) Even though their paycheck didn't go down during 2011, their year-end income tax liability went up in real dollars.

People are not going to be happy about this, and when we try to explain "Well, you actually got the money through the 2% SocSec reduction", they aren't going to understand. Most people look at that tax return in isolation, and they generally evalutate the result on a year-over-year basis. Personally, when clients ask me what happened, I'm just going to explain that our politicians were just playing an elaborate game of "hide the pea" with them. Maybe they will think about it when it comes time to vote in November of 2012.

[Davc]

We get new WH tables for 2011.

http://www.irs.gov/pub/newsroom/notice_1036.pdf

[JohnH]

OK. So the new withholding tables should roughly shift the 2% from SocSec over into Fed W/H. That makes sense - I wasn't completing the loop. Now it just means that SocSec is being raided to fund it and the problem is kicked further down the road. Better game of "hide the pea" than I was giving the politicians credit for, and it means we won't be dealing with unhappy campers in 2012.