Education >> Taxes, Taxes, Taxes

If You Get a Paycheck, You're Getting a Big Pay Increase

Enjoy it while it lasts!

As an employee, you know that some of your paycheck is withheld to pay for OASDI (Old-Age, Survivors and Disability Insurance) — more commonly known as the Social Security tax. Last year, you contributed 6.2% of your pay. But the new tax law cuts this tax in 2011 to just 4.2% — a 32% decrease! That means the maximum OASDI tax you’ll pay is $4,485.60 compared to $6,621.60 in 2010. You should already be noticing that your paycheck is larger than it was in December.

This temporary cut in Social Security taxes applies only to workers. Employers will continue to pay the same 6.2% for each employee as they did before. If you’re self-employed, you’ll thus be responsible for both the worker’s portion (4.2%) and employer’s contribution (6.2%), for a total cost of 10.4%.

Tip: This tax cut is equivalent to a 2% raise! Use the windfall to boost your savings by increasing the amount you contribute to your retirement account at work or by increasing the amount you invest elsewhere.

Learn About More 2011 Tax Updates»

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