No sweetener to the current fiscal cliff crisis, the Social Security Tax temporary reduction of 6.2% to 4.2% ends today.
This tax cut is a cut in United States payroll taxes, it was applicable for two years, 2011 and 2012 in an effort to stimulate the economy.
The tax cut ends 31 December 2012., and unlike the uncertainty around income tax rate hikes through the fiscal cliff, this tax break is likely to end regardless. Some 160 million Americans face less take-home pay from 1 January 2013.
Social Security tax is collected together with Medicare tax as FICA taxes for employees. Social Security tax is capped at US$113,700 of annual earnings (adjusted annually for inflation), and Medicare tax is uncapped.
These taxes are collected by way of withholding from employees’ paychecks (5.65% under the current tax cuts reverting back to 7.65%) and matched by employers (7.65%) representing a rate of 13.3% reverting back to 15.3%.
FICA taxes are usually not collectable by the US government on earnings by citizens and residents employed by foreign employers and working outside the United States, however, some exceptions apply.
Social security and Medicare taxes are mirrored for self-employed individuals to whom the same rates apply.