We’ll all be paying more social security taxes next year!
No new legislation has been passed, and President Obama is actually trying to reduce the payroll tax to 3.1%. But there are other forces at play here that may result in about 10 million Americans paying more in social security tax.
The news is mixed: Those who receive Social Security benefits will receive 3.6% more next year due to a cost-of-living increase that will go into effect. Inflation has been rising, but the same inflation that affects the amount of social security checks also raises the amount of income that is subject to the Social Security tax, also known as the payroll tax.
Currently, workers pay tax on the first $106,800 of income. But starting in 2012, workers will have to pay the tax on the first $110,100, an increase of $3,300 that will be subject to the tax.
In the past, the 12.4% payroll tax was split between workers and employers, each of which paid 6.2%. For 2011 however, Congress passed a temporary payroll tax holiday which lowered the work portion down 2 percentage points to just 4.2%
There are a few scenarios for how much people could pay, all depending on what happens in the next 2 months.
Currently, people making $110,100 or more pay $4,486 to Social Security taxes.
If the Social Security tax reverts back to 6.2% in 2012, people making $110,100 or more would pay $6,826, a whopping $2,340 more than the previous year.
If the Social Security tax remains at 4.2% in 2012, they would pay $4,642 in Social Security tax, an increase of $139 in 2011.
If Obama has his way and the Social Security tax is lowered to 3.1%, they would pay $3,413 in Social Security tax, a decrease of $1,073.
Of course, this only affects people who make over $106,800. For those that make less than that, all of their wages are subject to the tax, so a decrease down to 3.1% would help everyone while reverting back to 6.2% would hurt everyone.
UPDATE: The 2012 social security tax rate is set, and remains at it’s 2011 level of 4.2%. Yay for more money!