Tax Savings: The President Signed the Payroll Tax Holiday Into Law

There’s great news for working taxpayers this week.  On February 22, the President signed the payroll tax holiday into law extending the 2 percentage point payroll tax cut through the end of 2012.

payroll tax holiday

payroll tax holiday

The law maintains the lower payroll tax rate which reduced the social security tax taken out of your paycheck from 6.2% to 4.2% on income up to $110,100.  In addition, if you are self-employed, you will continue to pay the reduced social security tax rate of 10.4% instead of 12.4%.  The law also extends federal unemployment benefits and prevents doctors who accept medicare from taking a 27.4 percent reimbursement cut.

The payroll tax holiday extension also increases the amount new federal hires and those with less than five years as a government employee have to contribute to their pension plans in order to fund the payroll tax holiday extension and unemployment benefits.

What Does This Mean for You?

The extended payroll tax holiday prevents a tax hike that would impact 160 million working Americans and keeps an extra $1,000 per year in your pocket if you earn $50,000 per year($50,000 x 2%).

For 2012, your maximum savings will be up to $2,202($110,100 x 2%).  If you are married and each of you earn at least $110,100, that is a savings of $4,404!  That’s more money for you and your family.

How will that savings help you this year?

TurboTaxLisa

Lisa Lewis is a CPA and the TurboTax Blog Editor. Lisa has 15 years of experience in tax preparation. Her success is attributed to being able to interpret tax laws and help clients better understand them. Lisa also has been a TurboTax product user for many years and understands how the software program works. In addition to extensive tax experience, Lisa also has a very well-rounded professional background. She has held positions as a public auditor, controller, and operations manager. Prior to becoming the TurboTax Blog Editor, she was a Technical Writer for the TurboTax Consumer Group and worked on a project to write new FAQs to help customers better understand tax laws. She could also be seen helping TurboTax customers with tax questions during Lifeline. For Lisa, getting timely and accurate information out to customers to help them is paramount.

Comments (2) Leave your comment

  1. I do not understand why I must pay income tax on social security when it was my money to began with and I loaned it to the government, now when they pay it back they want more.

  2. wow; if the FANTASTIC earnings we had LAST year continue THIS year, that’ll be $200 more we are ALLOWED to KEEP!! Gas Bills, HERE WE COME!!!

Leave your comment* = required field