[After this article was published, Congress delayed the payroll tax increase to February 28, 2012, and further action is expected]

As local governments draw up budgets for 2012, we all face a problem.  We start with a 2% DECREASE in take-home pay next year. 

That is because the 2011 payroll tax holiday will end.  The usual 6.2% employee share of Social Security was reduced to 4.2% in 2011.  But that was for one year only.  It will return to 6.2% in 2012.  

(Note, some public safety employees are exempt from Social Security and are not affected by the holiday.  Also, there is talk in Washington, DC, about extending the holiday through 2012, but it is not evident how Washington would fund the resulting gap in the Social Security Trust Fund.)

The reduction felt like a raise in 2011, but it will seem like pay-cut when take-home pay goes back down in January, 2012.  

Who will employees blame?  Some will blame their current employers for seeming to reduce their pay next January. 

What should local officials do? 

Well, of course it would be ideal to budget pay increases to offset the losses.  That may not be realistic. 

At a minimum, local officials should remind their employees that the 2011 holiday was temporary, and they should expect the Social Security tax to return to normal with the first paycheck in January. 

If you offer a payroll deduction savings program, we suggest reminding employees they can have 2% withheld from now until the end of 2011.  Employees can then become re-accustomed to their normal take-home pay and set aside savings as well.