Comments Off | Wednesday, March 2, 2011
Here’s something I came across from my CPA and would like to share it with everyone.
President Obama signed Tax Relief, Unemployment Insurance Reauthorization and Job Act of 2010 on December 17 last year. The first noticeable impact of the Act should be temporary employee payroll tax cut by 2% e.g. from 6.2% to 4.2%.
Before the changes, Federal Insurance Contribution Act (FICA) comprise of Social Security 6.2% and Medicare tax 1.45%, totally 7.65% applies to employee as well as employer on gross wage. It means for $100,000 gross wage, employee and employer each pays $7,650 FICA taxes. The upper wage base for Social Security in 2011 is $106,800. There is no wages base limit for Medicare tax.
In terms of take-home money under the new law, you will get additional $2,000 if your gross salary in 2011 is $100,000. The social security tax topped at $106,800 in 2011, it means the maximum additional cash benefit would be $2,136 ($106,800*2%) in 2011 for employee.
Self-employed individuals will pay a 10.4% instead of 12.4% (6.2%*2) Social Security self-employment taxes of on all their self-employment income up to the same threshold.
The new law does not provide employment tax cut for employer. The employer tax rate for social security remains unchanged at 6.2%. Medicare tax rate is 1.45% each for employers and employees, unchanged from 2010. There is no wage base limit for Medicare tax.