If you’ve noticed an extra chunk of dough in your paycheck this year, you can thank Congress and the president for this 1-year tax holiday. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 reduces the Social Security taxes that are automatically deducted from your paycheck by 2 percentage points, to 4.2 percent from 6.2 percent, for wages that are subject to the tax, up to a maximum earnings of $106,800. If you earn $50,000, the tax reduction means that you’ll have an extra $1,000 by the end of the year.
Self-employed taxpayers also are entitled to this deduction, says Kathy Pickering, who is executive director of The Tax Institute at H&R Block. But chances for an extension next year on this reduction are tenuous, Pickering says.