Important Changes to Employee Withholdings in 2011

The American Recovery and Reinvestment Act of 2009 included a Making Work Pay credit, which employees received in the form of reduced withholdings on their paychecks. This credit was only in effect through the end of 2010. However, in 2011 a provision in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act reduces the employee Social Security withholding tax rate from 6.2% to 4.2%, effective January 1, 2011 through December 31, 2011. This provision, like the Making Work Pay credit, is intended to increase employees' take-home pay.

As a result of these two changes, most employees will see less total tax withheld from their paychecks. In some cases, however, employees will see more total tax withheld. This is because, for employees with modest incomes, the 2% reduction in the Social Security withholding rate only partially offsets the elimination of the Making Work Pay credit.

Tuesday, October 23, 2012 - 10