No – your boss did not decide to give you a raise. Congress did! The Tax Hike Prevention Act passed in mid-December gave all workers, both employed and self-employed, a 2% raise.
The Act reduced, for 2011 only, the employee share of the Social Security component of the FICA tax by 2%, from 6.2% to 4.2%.
If you earn $1,000 a week your Social Security withholding had been $62.00. For 2011 it will be $42.00.
Social Security withholding stops when your wages for the year reach $106,800. So the maximum you can save is $2,136.00. The maximum amount of employee Social Security withholding for 2011 is $4,485.60.
If you have more than one employer in 2011 and the total amount withheld for Social Security by all employers exceeds $4,485.60 you can get a refund of the excess withholding when you file your 2011 Form 1040.
The employer share of Social Security remains unchanged. Your boss will continue to pay 6.2% of your earnings, up t $106,800, into Social Security.
Self-employed individuals pay into Social Security via the “self-employment tax”. They also get the 2% savings. The Social Security component of the self-employment tax for 2011 drops from 12.4% to 10.4%.
If you did not notice the 2% increase in your first paycheck it may be because your employer’s payroll software has not yet been adjusted to reflect the change. The reduction is required to be in place by January 31, 2011. You must get a “catch-up” adjustment for any over-withholding no later than March 31st.
This 2% reduction in payroll taxes replaces BO’s “Making Work Pay” credit, which replaced Dubya’s disastrous rebate checks. While the MWP credit maxed out at $400.00 ($800.00 for a married couple), as I mentioned above this method can put a maximum of $2,136 ($4,272 for couples) in your pocket! However those who earn $10,000 per year will only get $200, where under Making Work Pay they got $400.
This tax cut is projected to cost $120 Billion.