The maximum social security withholding 2012 regulations permit is 4.2% of 110,100.00 or $4,624.20 for the employee. The employer's rate is 6.2% for maximum withholding of $6,826.20. In 2009 and 2010 legislation was passed which gave taxpayers a making work pay credit of $400.00 or $800.00 which they received as a refundable credit on their individual income tax return based upon their filing status.
This was a move by Congress to help struggling taxpayers through a sluggish economy. In 2011, the economy did not improve much, thus Congress in an effort to stimulate the economy gave taxpayers a break through lowering the social security rate from 6.2% to 4.2% for all workers. However, the employer's rate remained at 6.2%. The wage base for 2011 was $106,800.00. The same as 2009 and 2010.
At the close of 2011, there was much debate between the republicans and the democrats about extending the payroll tax cut. It was temporarily extended through February 2012 and fiinally, they did extend it permanently in a new law called The Middle Class Tax Relief and Job Creation Act of 2012.
Thus, as I said in my opening statement, the maximum withholdings for the employee in 2012 is $4,624.20. The employee does not have any requirements to receive the lower rate. The employer simply need to make the adjustment in its payroll system.
Those that are self employed will also get a reduction in the amount of social security tax that they are requird to pay as well. Instead of paying 12.4% they are required to pay 10.4% of their self employment income. The Medicare rate for the year the year did not change. It remained at 1.45% with no limit on the Medicare wages.
Karen Robinson-DeLee, EA