Put away the party hats: You won’t be celebrating a “payroll tax holiday” this year.
Facts: A 2% reduction in the Social Security tax portion of FICA tax withheld fromwas initially approved for 2011 and then extended for 2012. Thanks to this payroll tax holiday, the effective Social Security tax rate on amounts up to the annual Social Security wage ceiling dropped from 6.2% to 4.2%. A comparable tax break reduced the effective rate for self-employed individuals from 12.4% to 10.4%.
But the new "American Taxpayer Relief Act" doesn’t provide any benefit on this front. As a result, the Social Security tax withholding rate reverts to 6.2% for employees and the Social Security tax paid by self-employed individuals reverts to 12.4% up to the 2013 Social Security tax ceiling of $113,700.
Tip: The rate for the employer’s share of the Social Security tax has consistently remained at 6.2%.