New payroll tax reduction helps employees

Part of the extended tax cuts currently up for debate in Washington is a one-year payroll tax reduction that will put more money in the hands of employees. Overall, projections indicate that payrolls will see approximately $120 billion in gains for 2011, Bloomberg News reports.

While the maximum benefit will be an increase of $2,100 for anyone making over $106,800 or more, the payroll tax cut is tantamount to a 2 percent raise for employees and will provide businesses with more flexibility that can spur growth, AT&T chief financial offer Rick Linder told Bloomberg.
"You need to incent businesses to grow," Linder added.

Small businesses may not be significantly impacted by the cut, as only 3 percent of entrepreneurs earn more than $250,000 per year, according to the Congressional Joint Committee on Taxation. However, that 3 percent accounts for approximately $500 billion in net business income annually.

Currently, the first $106,800 of an individual's salary is subject to a 6.2 percent taxation. That will drop to 4.2 percent should new regulations pass. However, the tax rate for employers will remain the same, according to Bloomberg.

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