4.2% social security tax

The new tax law has a social security tax of 4.2%. Just the employees portion, if I read it right. Is it only for one year? And is there any relief for self-employed people? I was thinking 10.4% for them.

Reply to
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Yes on all fronts. Section 601 of the bill.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Reply to
Phil Marti

Phil is correct. Just to add one more item: The above the line adjustment for what used to be 1/2 SE tax is still the employer's portion. Since the employer's portion is not changed, the amount used for the above the line adjustment is calculatd without regard to this change. That's a good thing for SE taxpayers.

Reply to
Arthur Kamlet

You've lost me. The adjustment to income for paying SE tax is equal to

1/2 of the amount of SE tax on Line 5 of Schedule SE. Line 5 includes the employee and employer share. As such, in 2011, there is no change to the formula for computing the deduction. The amount of SE tax will be lower by the 2% temporary reduction in the rate and the amount of the deduction will be 1/2 of the lower amount of tax.
Reply to
Alan

What does the wording of the law say? If Arthur is correct, then the Schedule SE will be changed; no big deal.

Seth

Reply to
Seth

It says you deduct 59.6% of OASDI. I stand half corrected. The above the line deduction remains at 1/2 of both the employer's and employee's share of OASDI & Medicare calculated as if the 2% cut never happened. It is implemented by increasing the the OASDI 50% deduction rate to 59.6%.

Reply to
Alan

,

I disagree. The deduction states one-half, not the employer's share (although previously computationally equivalent).

"26 U.S.C. 164 ... (f) Deduction for one-half of self-employment taxes (1) In general In the case of an individual, in addition to the taxes described in subsection (a), there shall be allowed as a deduction for the taxable year an amount equal to one-half of the taxes imposed by section 1401 for such taxable year."

Therefore, the deduction for the self-employed is now LESS than the employer's share, by 1% of the gross. The computation changes: Only 6.65% (of the gross) is allowed, so the deduction may only multiply by a factor of 0.9335 instead of 0.9235.

Reply to
D. Stussy

That's old fashioned thinking, and has been superseded for tax year 2011.

Alan posted the actual code change.

I assume that change will be relected in a very simple change to Sch SE.

Reply to
Arthur Kamlet

Very simple. They are going to change 50% to 59.6% for the OASDI part and leave 50% for the medicare part. Work the numbers: .596 * 10.4 = .50 * 12.4

Reply to
Alan

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