For most working Americans every penny counts -- especially during this economic recession where salaries are down but many daily expenses remain high. So for many Californians who earn a salary of $50,000 per year, an extra $20 per week actually does make a difference. That amounts to just over $1,000 per year.
That amount is what many individuals could lose by the end of this year, according to many tax experts. There are several tax cuts that are set to expire by the end of this year, and the payroll tax cut is one of them.
Payroll taxes are generally a set percentage that is withheld from an employee's regular paycheck. Money withheld from an employee's paycheck goes towards the social security program. On most paychecks, an employee can see this percentage designation in the breakdown of the taxes withheld.
Employees received a bit of a break in January 2011 when a temporary reduction to the Social Security tax rate was enacted. The payroll tax holiday reduced the Social Security tax rate by 2 percent, down to a total 4.2 percent. That holiday is scheduled to expire at the end of the year, raising the percentage back up to the 6.2 that it was prior to 2011.
The tax holiday was enacted to give individuals a break during the tough economic times, but some wonder whether it had the desired effect. Although employees have benefited from the 2 percent reduction, many cite the rising cost of gas as an example of how individuals didn't get to truly realize the benefit.
"It' didn't really help support stronger growth, but it certainly helped the economy," said Mark Zandi, chief economist at Moody's Analytics -- one of many individual economists with an opinion on the subject.
Source: npr, "Payroll Tax Holiday May Not Survive Year's End," Tamara Keith, Sept. 5, 2012
If you have questions about Payroll Tax in Southern California, our website provides information for businesses and individuals.