2011 Paycheck Changes
By now, most employees in the United States have received their first paycheck of 2011. About the same time the first check is received, payroll departments across the country were deluged with questions about the changes on employee checks. This edition of the blog should help to clear up some of the confusion regarding a couple of these changes.
The Making Work Pay Credit is gone! The implementation of this tax cut was sloppy anyway. Single folks received up to $400 of tax cuts per year factored into their withholding. Married folks received twice this amount or up to $800. There was an upper limit to allowable income. The credit itself was described in detail in a blog post almost two years ago. In the tax cut bill that Congress finally passed in mid December, the Making Work Pay credit was happily missing. That means however, that employees of nearly every income level will see their Federal Income Tax withholding increase for 2011. It’s quite a shock in the amount of increase. However, there are no more funny games to play when preparing your tax return or figuring out your W-4 values. In summary, most employees will see their Federal Income Tax Withholding line increase.
Part two of the changes to employee checks this year has to do with the Social Security component of FICA withholding. Normally, Social Security withholding is 6.2% of taxable wages up to a base. That base is $106,800 per year as it has been for 3 years now. Employers must match the 6.2% value meaning total Social Security taxes are actually 12.4% of taxable wages up to the base or up to $13243.20 per year per employee. Self employed individuals paid the entire 12.4%. This is a lot of money! The above referenced tax cut bill cut the employee portion of Social Security by 2 percentage points. Now the total is 4.2% up to the base. Employers still are required to pay their portion at 6.2%. Self-employed individuals now pay only 10.4% as well.
PaycheckCity, a site run by Symmetry Software (my day job employer), had implemented these changes and placed them on the site in late December. To my surprise, the help desk team at PaycheckCity reported that CPAs and payroll staff members were writing with questions on why the Social Security rate was different. Some even adamantly (and ignorantly) proclaimed that we were wrong and they would never use the site again. The details of the tax plan have been all over the media in the last month. Social media has trumpeted the changes as well through the many different outlets. How anyone can still be unaware of this change just baffles me. Hopefully, I have provided some knowledge to those who hadn’t heard yet, while clearing up the confusion for those who had and were surprised at the change on their check.
Q. I have a full-time and a part-time job with different companies. My employers are both taking out Social Security tax. Is this correct?
Q. My question is: I work for a school. Sometimes parents gift money or gift cards at holiday time or for an appreciation event. Are these taxable. How about gift cards from a school committee (holiday drawing etc.) Even a child will offer a dollar in a card. If they are I am really upset. These are given from the heart, and not meant to be a burden. But I must know, as I’ve gotten different answers from different sources. thanks so much!
Arizona has done it again. Currently, anyone who is being paid in Arizona must select from several percentages on the A-4. Arizona withholding is based on a percentage of federal withholding. The percentage you pick will be multiplied times the federal withholding number on your paycheck to arrive at Arizona withholding. If you selected 24.5%, and your federal withholding was $112, then your Arizona withholding would be .245×112 or $27.44.
Q. My husband works for a large company, and I receive disability and do not work. We just had our taxes done this week and got quite a shock! We had a federal income tax refund of over $4000, but owed state tax of $1000 and local taxes of $600. We are in PA. How can we adjust our withholding so that this does not happen again next year?