Will the Payroll Tax Cut Be Extended?

Posted by Madison on August 24, 2011

The 2011 Payroll Tax Cut is set to expire at the end of this year. Based on the current state of our economy, will the payroll tax cut will be extended for another year? Will we see a payroll tax cut 2012?

The Payroll Tax Cut

The payroll tax cut, also called the payroll tax holiday, lowered your payroll taxes this year. During 2011, you only had to pay in 4.2% of your first $106,800 in wages to Social Security. At the end of the year, when the payroll tax cut expires, the rate will return to 6.2% of your salary. (The employer contribution was not lowered and remained at 6.2% all year.)

2012 Update: Congress extended the payroll tax cut for the rest of the year; the payroll tax cut now applies to all of 2012.

Prior Update: Congress voted to extend the payroll tax cut for 2012. The 2 month extension of the payroll tax cut will be followed by more negotiations to extend the payroll tax cut for the entire 2012 calendar year.

Old Updates: Congress was originally debating a few proposed options: a 2 month extension of the payroll tax cut on the first $18,350 of wages or a one year extension of the current payroll tax cut. If Congress does nothing to extend the payroll tax cut for 2012, it will expire and go back to the normal tax rate on January 1, 2012. We’ll continue to keep you updated.

Paycheck Impact

Since the payroll tax cut was a replacement for the Making Work Pay tax credit in prior years, we’ve grown accustomed to seeing the tax cut on our paychecks.

People seem to have short memories when it comes to changes in their paychecks (remember when Jill put together the great graphs to see what your paycheck will look like?), I would guess that many people would feel like the payroll tax cut expiration is an increase on taxes, even without a change in the tax brackets.

Taking One Year at a Time

And like every tax law that is put in place for just one year, it means we’ll have to revisit it again the following year to debate whether or not to let the law expire or to extend it another year.

And just like clockwork, a proposal is in the works for a payroll tax cut extension with a price tag of $112 billion.

The proposed payroll tax cut 2012 would look similar to this year, once again lowering social security contributions from 6.2% to 4.2%. Although after the debt ceiling issue, I’m wondering if we’ll have to wait until December 31 to find out if there will be an extension or not. What do you think?

Will there be a payroll tax cut extension?

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Comments to Will the Payroll Tax Cut Be Extended?

  1. It’s nice having the extra money but personally I don’t feel we can afford it given the nations debt issue. That being said, I think since we gave it out, taking it back that abruptly would be too much of an impact on our fragile economy. I think it should be extended but to a lesser degree, maybe 1.5% this year and 1% next year.

    Money Beagle

  2. I think things will look up as soon as we elect a new Pres.


  3. This payroll Tax Cut is backwards and will cause more damage to the economy than it will help. It is intended to increase consumer spending, but the majority of the benefits are going to the part of the economy that does not stimulated while it is depleting the SSA Trust Fund that currently has a 2.3 trillion dollar surplus.

    One in six Americans are of Social Security and this makes it the largest chunk of consumer spending that we have, and many of the SSA recipients are in the lower income brackets. This is the area of the economy that is lacking in consumer spending and this is where stimulus should be directed. These are also the same people that Obama gave $250 in stimulus to while he gave people earning $175k $500 in ARRA Stimulus.

    It appears that the liar in the White House is trying to bankrupt SSA while he shows his pearly white teeth to the American Public trying to convince them that he supports SSA.

    Rick A Gardner

  4. Americans are consumers to the core. They will spend their last dollar to get the latest toy. This will help the economy somewhat.


  5. If I don’t know anything else, I know that, if the 3.1% payroll tax cut proposed by the Obama administration is not passed, i will cut my personal spending by 3.1% of $110,100 or $3,413 and put it into my IRA or otherwise invest it in a way that I still have it come Monday morning. There was never much future in spending money and now the only future is in saving it.


  6. If the payroll tax cut is not extended, I suggest you make the tax cut for yourself by cutting your needless and wasteful spending by the amount of the tax cut. The cut is 3.1% of your wages, up to $110,100. The tax cut could be $1,000, $1,500 all the way to $3,300. Here’s how to do it:

    1. Cut your cable subscription to “basic”. We did that a few years ago and have saved $900 per year.
    2. Cut your dining out and bar room tabs by going out less often and eating [and drinking, if needs be] at home. You will be shocked…shocked by how much you save. You could save the entire tax cut on this item alone.
    3. Stop buying all the junk you buy at malls. Consumer goods sold in this country have fallen terribly in quality and are for the most part cheap plastic junk made by child slave labor in third world countries.

    Who do you think owns the businesses that sell this junk to you? It is the 1% we keep hearing about. RICH PEOPLE DON’T BUY THINGS…THEY SELL THINGS…TO PEOPLE SUCH AS YOU. Your continuing to buy this junk is what keeps you in the 99%. You keep yourself poor.

    Put your savings into an IRA and resolve to keep doing this, year in, year out. How you do like being broke all the time? Being broke is not only embarrassing and inconvenient; it can be fatal.

    I’ve been an attorney dealing with trust and estate clients for over 30 years. I’ve seen the habits of wealthy people. I’ve seen how they’ve got and remain wealthy and I share some observations with you.

    Remember: A. Rich people don’t buy things, they sell things.
    B. There is no future whatever in spending money but there is a splendid one in saving and investing it.

    Good Luck.


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