Every taxpayer is affected by Social Security in one way or another. If you’re working, you’re paying into it – if you’re retired, you’re receiving payments as a benefit. There’s no escaping the reach of Social Security!
These 2012 Social Security tax changes will affect everyone, so it’s important to know what it means for your paychecks.
Social Security Tax Rate
Payroll Tax Temporarily Extended
In 2010, taxpayers felt a 2% decrease of Social Security (or Payroll Taxes) they paid because Congress passes the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. This payroll tax holiday lasted through 2011 and was temporarily extended through February 29, 2012.
This leaves the current Social Security tax at 4.2% for employees and 6.2% for employers. You should start to see some buzz in the media on whether the payroll tax cut will be extended through 2012 or if it will end on February 29th.
Social Security Cost of Living Adjustments (COLA )
The Social Security Administration announced the 2012 cost of living adjustments for Social Security recipients. According to their website:
Based on the increase in the Consumer Price Index (CPI-W) from the third quarter of 2008 through the third quarter of 2011, Social Security and Supplemental Security Income (SSI) beneficiaries will receive a 3.6 percent COLA for 2012.
This means that social security benefits in 2012 will be increased by 3.6%. This figure was used based on inflation calculations from data between 2008 and 2011.
The following chart shows the estimated monthly Social Security Benefits for 2012.
Estimated Average Monthly Social Security Benefits for 2012:
|Before3.6% COLA||After 3.6% COLA|
|All Retired Workers||$1,186||$1,229|
|Aged Couple, Both Receiving Benefits||$1,925||$1,994|
|Widowed Mother and Two Children||$2,455||$2,543|
|Aged Widow(er) Alone||$1,143||$1,184|
|Disabled Worker, Spouse and One or More Children||$1,826||$1,892|
|All Disabled Workers||$1,072||$1,111|
Maximum Taxable Earnings Table
The amount of income subject to Social Security tax has increased for 2012. The 2011 maximum taxable income level was set at $106,800. For 2012, this amount has increased to $110,100. The Social Security tax is only limited to this maximum; the Medicare portion of your payroll tax (1.45%) does not have income restrictions.
Be prepared to see your paychecks shrink a little if the Payroll Tax Holiday is not extended beyond February. If legislation does not extend the Payroll Tax Holiday, you’ll be taxed at 6.2% again for Social Security.
How do you feel about these Social Security tax changes? Will the COLA adjustments benefit you or someone you know?