If you pay social security taxes, your withholding rate just dropped from 6.2% to 4.2% beginning January 1st. This tax cut, dubbed the 2011 Payroll Tax Holiday, was actually passed by Congress late last year as a replacement to the expiring "Making Work Pay" tax credit.
This is great news for workers! In fact, the reduction in withholding rates can translate into big savings, especially for high-income earners who pay social security taxes on the first $106,800 of their salary. On average, the tax cut is expected to provide about $1,000 in tax savings per taxpayer this year, while high-income earners could save as much as $2,136.
But before you go booking a vacation to Mexico, you may want to consider putting this extra cash to work for you instead. Have you been skimping on your 401(k) contributions lately, or are you still battling high-interest credit card debt? If so, make use of this one-year payroll holiday to finally get out of debt and start saving more for the future.
