Payroll Tax Relief and What it Means to YOU

If you haven’t heard, President Obama signed a new tax bill last week. One of the items that will affect all employees is the 2% point reduction in an employee’s share of Social Security portion of the FICA Tax, from 6.2% to 4.2%. What exactly does that mean for you?
The table below illustrates the change and savings. FICA limits are currently adjusted for inflation and are currently set at $106,800. The tax savings is currently only available for 2011.


Pay             2010 Tax (6.2%)     2011 Tax (4.2%)     Savings


$30,000      $1,860                    $1,260                     $600
$50,000      $3,100                    $2,100                     $1,000
$80,000      $4,960                    $3,360                     $1,600
$100,000    $6,200                    $4,200                     $2,000
$106,800    $6,621                    $4,485                     $2,136


This is a huge opportunity for every employed person to increase their 401k contributions or contribute to an IRA or a Roth IRA in 2011.  This is FREE money, folks.  Using it for retirement is a very wise move. 


Please call me if you need more information or want to take advantage of the extra money in your pocket by smart retirement investing. 

2010's Big Tax Bill Explained (Part 1)

13 pages of summaries are what comprises the new Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010.

My daunting task, should I accept it (and let's face it, I am accepting it because I'm writing this), was to wade through the jargon to find what would be useful to the average tax payer, like you and me.

There are 7 main parts to this bill, but today we are covering what's just under the first section called the "Temporary Extension of Tax Relief."

What's found in this section of the bill is a lot of tax break extensions from 2001 and 2003 that were set to expire, but are being extended through 2012. (You may feel some deja vu, but this is what the American Recovery and Reinvestment Act did last year for 2009 as well.)

The bill...

·        Continues the reduction in income tax brackets for 10%, 25%, 28%, 33% and 35%

·        Extends the capital gains and dividend rates

·        Increased extension of credit from $500 to $1000 for the Child Tax Credit

·        Extends the marriage penalty relief

·        Gives incentives for families and children

o   Expanded tax credit for child care  costs for children under 13 and special needs dependents

o   Tax credits for qualified adoption expenses

o   Tax breaks for employers purchasing or building a child care facility for their employees

o   Continuing the 45% tax credit for working families' first $12,570 worth of income

·        Education incentives for those going to school

o   Coverdell savings accounts remain tax exempt

o   Employee can exclude up to $5,250 worth of income for employer provided education assistance

o   Student loan interest deduction up to $2,500

o   Excludes scholarships from income

·        Bond exclusion

·        American Opportunity Tax Credit extended (Rebate of up to $2,500 of tuition or education related expenses)