You may have heard about the battle over whether or not to extend the 2% employee payroll tax cut. You may or may not have noticed it, but during 2011 you have been paying 4.2% of your pay to Social Security Taxes. Normally, it is 6.2%. If you believe the press and politicians, this has put an additional $1,000 in the average person's pocket. If you are self-employed you have also been saving that 2% in reduced self-employment tax rates (which include the 4.2% Social Security Tax). This 2% cut is set to expire at the end of 2011.
Note that not all wages are subject to Social Security Taxes. In 2012 the maximum pay subject to Social Security Tax is $110,100.
What are my thoughts on the topic? A two month extension is not the solution. It just continues the uncertainty and doesn't solve the problem. If the economy is weak enough (and it probably is) that it needs to be extended then the government should go ahead and extend it for the entire 2012 year. However, while this cut is in place we are seriously underfunding an already underfunded Social Security program. One way or another, we are going to pay the piper down the road.