If you work in a job that's covered by Social Security, your employer normally withholds 6.2% of your wages to pay for the Social Security portion of federal employment (Federal Insurance Contributions Act, or FICA) taxes (assessed on wages up to the taxable wage base of $110,100 in 2012). Your employer has to pay the same amount--6.2% of your wages up to $110,100 (in 2012). You and your employer also each contribute an additional 1.45% of your compensation (with no limit) for the Medicare portion of the FICA employment tax.
If you're a self-employed individual, you have to pay both portions of each tax. Normally, that means you would pay 12.4% for the Social Security portion of your self-employment tax, and 2.9% for the Medicare portion of your self-employment tax.
Legislation in late 2010 extended multiple expiring tax provisions. The legislation also created a temporary one-year payroll tax cut in the form of a 2% reduction in the Social Security portion of the FICA employment tax. That means for 2011, if you were an employee, you paid Social Security tax at a rate of 4.2% (instead of 6.2%). If you were self-employed during 2011, you paid the tax at a rate of 10.4% (instead of 12.4%).
In late December 2011, legislation extended the 2% reduction through February 2012 to give parties time to reach a broader agreement. Subsequent discussion and compromise resulted in the Middle Class Tax Relief and Job Creation Act of 2012, signed into law on February 22, 2012. This new legislation extends the 2% Social Security payroll tax reduction once again, this time to the end of 2012.
You don't have to do anything to get the benefit of the payroll tax deduction--the Social Security portion of your payroll tax should simply continue to be withheld at the lower rate. It's also worth noting that the lower rate will have no effect on your future Social Security benefits.