Help Employees “Top-Up” 2011 FICA Tax Savings

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has given virtually all working Americans a 2 percent tax cut in 2011 on the first $106,800 of wages. Congress created this benefit by reducing the employee's share of FICA withholding from 7.65 percent to 5.65 percent, up to the Social Security wage base of $106,800. Key points:

• The cut is for one year only (2011).
• The 2 percent reduction is only in the employee's share of FICA, not the employer's share.
• Wages above $106,800 are still subject to the Medicare portion of FICA withholding.

Since employers will not be deducting this 2 percent from paychecks in 2011, most workers will see the extra dollars in their pockets throughout the year. So, if they aren't maxing out HSA contributions, tell them how to “top-up” the tax savings. Putting these dollars into their HSAs, up to the maximum 2011 contribution ($3,050 single; $6,150 family), will help to increase tax savings even more.