Today I was watching news and I heard about a "payroll tax cut." They were talking about a 2 month extension of something being passed, but they wanted to pass a 1 year extension.

Can someone please explain what this payroll tax cut is exactly, and if it is going to affect my tax return in any way?


The Payroll Tax is the FICA deduction from you pay for 6.2% (up to the first $106,800 of wages for an individual in 2011) of income which covers your Social Security costs. In 2011, it was reduced by 2%, $1000 saved by the median $50K earning family.

Today, they voted to make the 2% reduction extended through 2012. At the high end, a family with two earners can save as much as $4272 from this temporary reduction.

  • thats good. They shud have extended it for one year then. :)
    – Asdfg
    Dec 20 '11 at 0:28
  • I'm not sure how good it is, its leaving the Social Security underfunded. The system liabilities are not being reduced.
    – littleadv
    Dec 20 '11 at 0:41
  • Social Security is not underfunded. A common misconception. Source <http://www.ssa.gov/oact/STATS/table4a3.html>
    – Daniel
    Dec 20 '11 at 1:39
  • 8
    Not yet, but the bean counters are predicting that it will be upside-down by 2016: money.usnews.com/money/retirement/articles/2009/05/13/…
    – JohnFx
    Dec 20 '11 at 2:29
  • The US govt can afford to pay anything, so it can never run out of money. I think that's the common misconception - that we think its different than other govt spending. Dec 20 '11 at 20:27

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