Don't fritter away the 2011 Social Security Tax Holiday

Putting That Tax Holiday to Work in 2011

Excerpt:

The biggest Christmas present that many people will get this year comes from the federal government. And most will probably fritter it away.

Thanks to the tax bill that President Obama signed a week ago, a large number of Americans will get a year-long discount on their payroll taxes in 2011. Normally, employees pay 6.2 percent of their salaries, up to a $106,800 limit, toward Social Security. In 2011, that number will fall to 4.2 percent.

As a result, individuals could end up with a payroll tax savings of up to $2,136 in 2011, according to CCH, a tax information provider. Households with two wage earners who both make more than $106,800 will get $4,272, double the amount for individuals.

The self-employed will share in the year-long tax holiday as well, though they will still be on the hook for the full 6.2 percent of the employer contribution to Social Security. As a result, they’ll pay 10.4 percent in payroll taxes instead of the usual 12.4 percent.

Comment: We calculated our savings over the year and divided by 52. Every Friday that amount is transferred to savings. (While we actually get paid every two weeks, it was easier to set up weekly transfers). INGDirect is a good place for automatic savings plans.