Not so long ago when it looked like the Bush tax cuts might expire, we were all worrying about the possibility of shrinking paychecks.
Now we're worrying if our employers can get the new withholding tables in place to make sure our paydays will be bigger.
A 2 percent payroll tax cut is part of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010. The payroll tax is the portion that goes to pay for Social Security.
For the next few days, that withholding is 6.2 percent of your paycheck.
But on Jan. 1, 2011, the amount withheld drops to 4.2 percent of your income earned next year, up to $106,800. If you make up to that taxable earnings cap, this 2 percent reduction translates into tax savings of $2,136.
Of course, since Congress took so long to pass the tax relief act, the Internal Revenue Service and employers are in a bit of tough spot in implementing the changes.
The IRS just issued new withholding tables reflecting not only the payroll tax cut, but also the newly extended 2011 income tax rates and the previously scheduled expiration of the Making Work Pay tax credit. (Remember, this tax credit is still in effect for 2010, so you can claim it on your returns you'll file next year.)
That's a lot of changing numbers, but now all employers have to do is put the new tables in place. But, as any payroll administrator will tell you, that's easier said than done.
So the IRS is giving workplaces some time to take care of the new withholding. The agency has instructed employers to implement them "as soon as possible in 2011 but not later than Jan. 31, 2011."
And if an employer does end up withholding the payroll tax from workers at the higher 6.2 percent rate, the IRS says the employers must reimburse the workers the difference "not later than March 31, 2011."
So be sure to check your first paycheck next month and if you have any questions about the amount, check with your boss about whether (or when) the new, lower payroll withholding tax is in place.
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