Paul Altavena and Michael Young of ConnectPay inform employers that most employees will see a net change in their take home pay beginning in January of 2011. This is a result of the Tax Relief Act of 2010 explained below. They said that most will see a net increase while some will see a net decrease.
Those that experience a change in their net take home pay will do so because of the reduction in employee social security withheld in 2011, and also because of the elimination of the Making Work Credit ($400 for single and $800 for a married couple filing jointly).
In 2010, the credit was accounted for in employee’s paychecks through reduced withholding. The removal of this credit from the tax tables in January of 2011 increased the amount of Federal Income Tax withheld, mostly in lower wage earners even though the actual tax did not increase. Those employees will see a net decrease in their take home pay.
For employees making more than $20,000, or $40,000 if married, the savings on the reduction of social security will offset the change of removing the Making Work Credit and they will see a net increase.
Michael Young reports what happened.
On December 17, 2010, President Barack Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 also known as Tax Relief Act of 2010.
This law reduces the social security tax rate paid by employees from 6.2% to 4.2% for wages paid in 2011 only. Employers share of Social security remains at 6.2%. For the employee however, this law provides a 1 year net increase of 2% of their gross wages. The Tax Relief Act of 2010 also extended the Bush-era tax rates, which were set to expire on December 31, 2010, for two years, through December 31, 2012, thus avoiding a sharp increase in income tax withholding for most employees. But, the Making Work Credit also expired December 31, 2010 changing the federal income tax withholding from wages paid in 2011.
Paul Altevena reports that in a news release, the IRS said it recognizes that the late enactment of the Tax Relief Act makes it difficult for many employers to update their withholding systems for the first payroll of 2011. Therefore, the IRS is asking employers to update their payroll systems as soon as possible, but not later than January 31, 2011.
Paul and Mike state that in a continuing effort to keep our tax calculations current and accurate, ConnectPay had its tax calculations completed for the first payroll in January 2011.
Michael Young says that employees may wish to complete a new W-4 form for 2011. The IRS has released the 2011 W-4 form in order to adjust their withholdings. He also said employers can get the 2011 version in the Resource section of our web site. Current I-9 forms and other useful links can be found in the same section. (Click on this message to go to our Resource Page.) Current I-9 forms and other useful links can be found in the same section.
Paul Altavena and Michael Young also point out that ConnectPay offers a FREE Human Resource Service to it's clients.
ConnectPay also offers a Human Resource Premium service that provides an employer with 24/7 access to our labor law attorneys at the law firm of Epstein, Becker & Green for all Human Resource and Labor Law Questions for just a few dollars a day.
Contact ConnectPay for more information on this and all of ConnectPay's services and offerings.
