Planning for Social Security Taxes in 2012

With the last minute agreement to extend the 4.2% individual social security tax rate into 2012, we now can start looking at planning our tax situations for 2012.

Well, sort of.

We have our individual income tax rates set, we know our state tax rates, but by only extending the social security tax cut for 2 months, Congress has made it harder for us to plan. We don’t really know whether we can count on that 2% tax savings for the entire year or if our paychecks will become a little bit smaller come March 1st.

Originally, having the tax rate go back to 6.2% would have meant an increase of $2,340 for those who make $110,100 or more.

With a 2 month guaranteed tax break, if Congress really can’t agree on an agreement for the other 10 months of 2012 and the social security tax rate does indeed increase to 6.2%, that will cost taxpayers who make $110,100 or more a total of $1,950. That is not a small sum at all!

However, I do believe that since both Democrats and Republicans have shown indications that they want to extend the tax break through the end of 2012, and while I have no idea how they’ll come to an agreement, I do think that we will see the social security tax rate remain at 4.2% through the end of the year.

While I don’t advocate spending the money before you have it, I think it’s safe to calculate the savings over the course of the year. Maybe that will be extra savings that you can put toward retirement, or maybe that’s a grand or two that will go toward paying off debt. Either way, use it wisely and enjoy your extra savings in 2012!