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Social Security Tax Reduction

12/17/2010

One of the lesser know tax breaks that was passed yesterday is the reduction in Social Security tax from your payroll checks. Social Security tax is listed as FICA on your paycheck. The rate is going from 6.2% down to 4.2%, which means we can expect to see slightly larger paychecks in 2011.

Although this seems like it will be beneficial to all workers, it has less of an impact on those that earn lower wages. Unlink 2009 and 2010, the reduction in FICA could be significantly less than Making Work Pay Credit workers were entitled to. For more information on how this may affect you read this article.

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Will we get our tax cuts extended?

12/16/2010

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Hopefully by days end we will know how many tax cuts are going to stay in place for the next year. On the table to extend are: (excerpted from Business Week article)

Lower tax rates for taxpayers at every income level. The top rate, on taxable income above $379,150, would stay at 35 percent, instead of increasing to 39.6 percent. The bottom rate, on taxable income below $8,500 for individuals and $17,000 for married couples, would stay at 10 percent, instead of increasing to 15 percent.
More generous itemized deductions for high-income households.
A more generous $1,000 child tax credit.
Marriage penalty relief, increasing the standard deduction for married couples.
A more generous Earned Income Tax Credit for low-income families.A series of tax breaks for students and their families, including interest deduction for student loans and an exemption for employer-provided educational assistance.
A deduction for tuition and related expenses for higher education, for 2010 and 2011.
A tax credit of up to $2,500 for students' higher education expenses.
The top capital gains tax rate of 15 percent.
The top tax rate on dividends of 15 percent.
A $250 deduction for out-of-pocket classroom expenses by teachers, for 2010 and 2011.
A federal income tax deduction for state and local sales taxes, taken mostly by people who live in the nine states without state income taxes, for 2010 and 2011.
Increased depreciation and expensing for capital investments by businesses.
Spares more than 20 million middle-income households from tax increases averaging $3,900 from the Alternative Minimum Tax in 2010 and 2011.

Many of these have been in place so long that we have forgotten that they were 'temporary' cuts. For many of us, we fall into the middle class where we pay 15-25% in taxes. However, because of many of these cuts we pay much less, some of us even receive generous refunds. While some of these credits/deductions seem as if it would be foolish to let them expire, our country is under great financial stress and the government is looking for any way it can lower the deficit. But, its likely this tax package will pass and we will have another two years of tax relief.

As always - leave your comment and/or questions, I would be happy to respond/answer.

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Social Security Tax Reduction

Will we get our tax cuts extended?

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