The payroll tax, also known as FICA, is split evenly between employees and employers. Employees pay 6.2% and employers pay the other 6.2% for a total of 12.4% for social security, plus a 2.9% medicare tax, split 1.45% to employers and 1.45% to employees. For self-employed, the FICA is also referred as the Self-Employment tax, SE tax. The employer's share of the FICA taxes, 7.65% is deducted in the tax return.
After the expiration of 'Making Work Pay Credit' in December 2010, in order to continually boost the amount of money people pocket in their paychecks, for 2011, congress has reduced the social security tax by 2% for employees. Therefore, self employed will pay SE tax at a rate of 13.3% instead of 15.3%, with the same 7.65% deductible with the tax return.
President Obama's new proposal gives even more cuts for both employees and employers. The proposal will cut the social security tax in half for both employers and employees, it will be 3.1% instead of 6.2% each. The employer's cut is limited to the first $5 million of a firm's payroll.
Social Security tax Medicare tax
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employer employee employer employee
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2010 6.2% 6.2% 1.45% 1.45%
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2011 6.2% 4.2% 1.45% 1.45%
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President Obama's proposal:
3.1% * 3.1% 1.45% 1.45%
* to the first $5 million of the payroll
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