Not quite a year ago, when Congress was extending the Bush-era tax cuts, they also enacted a “Payroll Tax Holiday.” In short, this meant that your FICA taxes would be reduced by 2%.
For those that are unaware, your FICA taxes total (on the employee side) 7.65% of your gross compensation, with 6.2% going toward Social Security and 1.45% going toward Medicare. Once the “holiday” kicked in, the Social Security portion was temporarily reduced to 4.2%.
The Social Security portion of this tax, referred to in your pay stub as FICA-OASDI, applies to your first $106,800 in earned income. After that, the Social Security tax drops off, but the Medicare tax remains in place. Given this, the Payroll Tax Holiday is worth up to $2136/year (that’s 2% of $106,800).
With that said… It’s worth noting that this tax break is currently on the chopping block as part of the deficit reduction talks. In truth, this was only a one year break, but once tax cuts are enacted it’s politically difficult to get rid of them, so I fully expected this to continue into the future. Looks like that may not be the case.
What do you think? Should we ditch the Payroll Tax Holiday at the risk of further under-funding our Social Security obligations? Or leave it in place in hopes of spurring consumer spending, and helping to get the economy back on track.
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