Why Your Taxes Are Going Up At Least 2% Next Year

This year you may have been blissfully enjoying an increase in your paycheck without realizing it.  Remember the Tax Act of 2010?  One of the provisions in that little gem of legislation was to reduce the Social Security withholding amount for the calendar year 2011 by 2%.  This means that you’re only having to pay out 4.2% for Social Security tax during the 2011 tax year – and next year you’ll back back in the 6.2% world.

But Wait, There's More

That’s not where it stops.  There is another increase in the offing for 2012: the tax wage ceiling is scheduled to increase as well, from the $106,800 level that it’s been at for the past two years, to an estimated $110,100.  This means that if you’re at the top of the wage base, your withholding and employer portion of Social Security tax will increase from $11,107 in 2011 to $13,652 in 2012 – an increase of more than $2,500.

This increase is most impactful for the self-employed, since we lucky ones have to pay both sides of the Social Security tax on net self-employment income.

So – just don’t forget as you’re planning your income and expenses for the coming year, withholding is going to be a little more in 2012 than it has been this year.

That’s all for now.  You can go back to what you were doing. :)

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

An IRA Owner's Manual
A Social Security Owner's Manual


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  • Hi, Patricia –

    That’s a very simple question with a very complicated answer. It depends on your income, your need for the funds, whether or not you have other funds available to help pay the tax (on a conversion), and other factors.

    It’s definitely outside the scope of questions that should be dealt with here, since so much is dependent on your own specific personal circumstances. This is a good question for your financial advisor to help you with.

    Sorry I couldn’t be of more help.


  • I am 64 years old. I have an IRA. Would it be better to transfer it into a roth IRA this year? What is the best age to start withdrawing monthly benefits from the IRA?

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