Withholding Your Taxes
One of the keys to avoiding penalties or other nasty surprises come tax time is to make sure your withholding is correct. Withholding can sometimes feel complicated, but it boils down to just a few issues: filing status, number of dependents, pay frequency and pay amounts.
Social Security and Medicare (sometimes referred to together as "FICA") taxes are the easiest to figure: Those taxes are simply withheld from your wages by your employers at a flat rate. In 2010, the amount withheld from your pay for Social Security is 6.2% on earnings up to $106,800. The amount withheld for Medicare is 1.45% on all earnings.
It's worth noting that this is not the case for 2011. As a result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, there's a one year "payroll tax holiday" for employees. For 2011 -- and only 2011 -- the amount withheld from your pay for Social Security will be 4.2% on earnings up to $106,800 (the amount withheld for Medicare remains 1.45% on all earnings). That means a taxpayer earning $50,000 will see an extra $1,000 in his or her take-home pay in 2011.
