Payroll tax reduction.

[AccTaxMan]

I think the 2% reduction in employee's social security tax has been confirmed.

Is it a reduction of the FICA portion of the social security tax or the Medicare portion?

[RitaB]

Ss

The reduction is for the Social Security portion, per IRS Notice 1036.

[taxea]

and only good for 2 years

[MAJ]

Social Security..?

Very confused on this one....

Okay - So, Social security could not give Seniors a raise last year because it was tough times - Do I remember that right?? I do not collect, but I think I remember someone saying something... .

So, (and even if it's not true) - How can they take a 2% deduction. I do believe this year there will be a record number of baby boomers retiring.

2% - Now - Since their share is based on 6.x% from the employee that equates to almost 1/3 loss of income. Factor in the employer side, it's less. But HOW can they sustain that? What is going on? The Federal calculator is way out of order.
I think they may know something about 2012........

[oceanlovin'ea]

Employer still pays 6.2%

The employer will continue to pay 6.2% on the wages of the employees.

I thought it was only for one year. But could be wrong.

The "making work pay" credit was not extended. So they were trying to come up with a way to keep more money in the paychecks. Not saying it is a good way, but that is the reasoning I heard.

Linda

[Jiggers]

Compare Withholding

2010 versus 2011 in the new Circular E that you can download from the IRS website.

There is a significant increase in the withholding.

[RitaB]

I knew it

Got my first call this morning from a client figuring her payroll deductions. I explained it yesterday, sent her a fax with sample calculations for a payroll check AND a payroll tax deposit. I told her three or four times: "When you figure the deposit, you can't just double what you withheld... blah, blah... employer part did NOT get reduced...You used to send in 15.3% for SS/MC tax. Now it is 13.3%."

This morning, client calls:

Client: So, I now multiply by 5.65%.

Me: Correct.

Client: OK, I got it! Then when I figure the deposit, I double that, right?

[JohnH]

Rita: Just tell her that doubling the FICA/Med withholding is the same as multiplying by 2. But now she should multiply the employee FICA/Med withholding by 2.354.

If you don't offer her any explanation, you can wait to see how long before she asks why that works.

[Jesse]

and only good for 2 years

I thought this "payroll holiday" is for one year - 2011 only?

[RitaB]

Worth a try

Rita: Just tell her that doubling the FICA/Med withholding is the same as multiplying by 2. But now she should multiply the employee FICA/Med withholding by 2.354.

If you don't offer her any explanation, you can wait to see how long before she asks why that works.

I used to be an Algebra teacher. I REALLY love you now, John.

She just called back saying she got TWO letters from IRS, can I explain what they are about? She faxed me both copies of a correspondence, thinking it was two different letters. Maybe I will tell her to fax me 2.354 copies and I will make the problem go away.

[Mike Mac]

CSRS and FERS

Interesting sidenote that I never thought of before regarding the 2% reduction. The federal govt has basically two retirement systems. The old CSRS system and the newer FERS system. Two employees doing the same job at the same pay grade will get paid differently in 2011. The newer FERS employee will take home an extra 2% due to the fact that CSRS employees don't pay into the social security system.

Mike Mac

P.S. And I'm still bummed out that the 2% reduction does not apply to SE taxes.

Edited version
P.S.S. I sure am glad that the 2% reduction applies to SE taxes for 2011!!!

[Jesse]

P.S. And I'm still bummed out that the 2% reduction does not apply to SE taxes.

It does apply to SE - the 12.4% will be 10.4% - or so I thought?

[Fuzzy Faced Leader]

941 didn't change

OK, I understand the Social Security Tax withholding for employees goes from 6.2% to 4.2%. But the employer still has to pay Social Security Tax of 12.4%, per line 5a of the 941 for 2010. Thus, the 2% reduction in withholding is made up for by the employer paying 2% more in Social Security tax, on the 941. Thus, there is no effect on total Social Security Tax withheld.
Am I correct?

[DaveO]

Any word if this applies to the self-employed or do that get the shaft as usual?

[JohnH]

No. The 2011 form 941 will calculate it correctly - the employer won't have to make up the 2%.