Social Security tax drops to 4.2 percent

You may have already noticed that your paycheck is a little fatter due to a change in the amount of Social Security tax deducted. Beginning January 1, the Social Security tax rate for employees dropped by two percentage points, from 6.2% to 4.2%. The change is the result of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, approved in the final days of the Democratic House of Representatives and signed into law by President Obama on December 17, 2010. The Tax Relief Act also extends income tax cuts and tax credits, including:
•  The Child Tax Credit: The $3,000 refundability threshold established in the Recovery Act for the Child Tax Credit will be extended, benefiting low-income families with children.
•  The American Opportunity Tax Credit: The Recovery Act modified the existing Hope Credit for education by including families with higher incomes, adding course materials to qualifying expenses, and allowing the credit to be claimed for four years of college instead of two. These provisions and the maximum annual credit of $2,500 were continued by the Tax Relief Act.
•  100 Percent Expensing: The new Act included the President’s proposal to allow businesses to expense 100% of their investments in 2011.
•  1603 Renewable Energy Grants: The 1603 program provides a 30% grant to cover the cost of qualified renewable energy projects such as solar, bio-mass, or wind.