The temporary reduction in the tax rate for social security coverage has remained unchanged in 2012, which will be for a second year in a row that the rates have not changed. In order to take advantage of the low tax rate, wage earners may want to consider negotiating for bonuses to be paid out in 2012. Also, by deferring deductions or increasing revenues, self-employed persons may wish to accelerate income in 2012.
New Social Security Tax Rate for 2012
The year 2011 saw some notable changes in the social security payroll taxes, that were declared by the Department of Treasury in December 2010 by the way of Notice 1036. Some of the important decisions like keeping the payroll tax rate at 4.2% have been extended till the end of 2012.
The social security tax rate 2012 for employees is 4.2%. Government has decided not to raise the tax rate at least for the year 2012. This tax rate was earlier implemented for the year 2011; it was about to expire in February, 2012. However, the Congress decided to extend the temporary relief offered to employees furthermore. The tax rate for employers would remain the same i.e. 6.2%. The provision to keep the tax rate at 4.2% (i.e. 2% lesser) for employees was made through the Middle Class Tax Relief and Job Creation Act of 2012. About 160 million workers are expected to benefit from the decision to enforce this act. It is important to note that a lower tax rate won't affect in any way the returns or future Social Security benefits.
As per the recapture provision, those who earn more than $110,100 a year have to pay an additional income tax of 2%. This 2% tax will be charged on that amount of wages which is greater than $18,350 in the two-month period. It is important to note that this additional income tax won't be deducted from the payroll in 2012. You are expected to pay this tax amount in 2013 at the time of filing the income tax returns.
Keeping the tax rate at 4.2% means that the government treasury must bear some burden. However, the deficit in revenues created by granting tax holidays is managed by taking out revenues from general funds and transferring them to the Social Security funds. There are indications given by the government that such kind of tax benefits won't be on offer in 2013. From the year 2013, employees will have to pay taxes at the regular rates.
Understanding Social Security Tax
The 'social security tax' is a common term used for what is officially known as Federal Insurance Contributions Act (FICA) tax. This act which is codified at Title 26, Subtitle C, Chapter 21 of the United States Code, empowers the Social Security Administration and Internal Revenue Service with jurisdiction to collecting the tax and providing administration for the said tax.
The objective or purpose behind enforcing this act is quite simple and clear i.e. to provide financial support in the form of kindness to retirees. The social security tax, basically a payroll tax, is deducted from your monthly (periodic) salary to fund a series of social security insurance programs, Medicare and Medicaid. Some social security benefits are very useful and include the Federal Old-Age (Retirement), Disability Insurance, State Children's Health Insurance Program (SCHIP), etc.
In fact the much useful unemployment benefit programs which helped several people in the times of economic recession are also funded through collection of social security payroll taxes. It must be noted that these payroll taxes are referred to as 'tax withholding' in official usage and several documents. The updates to social security taxation should relieve some burden off the employees.