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?

1 Answer 1


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, 2011 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, 2011 at 0:41
  • Social Security is not underfunded. A common misconception. Source <http://www.ssa.gov/oact/STATS/table4a3.html>
    – Daniel
    Dec 20, 2011 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, 2011 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, 2011 at 20:27

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