Vision Payroll

December 17, 2010

Question of the Week: How Does the 2010 Tax Act Affect Payroll Taxes in 2011?

How Does the New Tax Bill Affect Payroll Taxes in 2011?
How Does the New Tax Bill Affect Payroll Taxes in 2011?
This week’s question comes from Matt, a company president. I know the tax bill has passed the Senate and House and that President Obama has signed it. How does the new tax bill affect payroll taxes in 2011? Answer: The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Act) should give many employees an increase in their take home pay starting with their first check in 2011.

Social Security Withholding to Be Reduced To 4.2%

The biggest impact many employees will see is the reduction of Social Security withholding from 6.2% to 4.2%. According to the Internal Revenue Service (IRS) in Notice 1036, “Employers should implement the 4.2% employee social security tax rate as soon as possible, but not later than January 31, 2011. After implementing the new 4.2% rate, employers should make an offsetting adjustment in a subsequent pay period to correct any overwithholding of social security tax as soon as possible, but not later than March 31, 2011.” The new law also maintains the income-tax rates that have been in effect in recent years.

Making Work Pay Credit Set to Expire

The Making Work Pay credit expires on December 31, 2010. As a result:

  • The income tax withholding tables for 2011 are not adjusted for the Making Work Pay credit.
  • There is no longer an optional additional withholding adjustment for pensions.
  • The procedure for withholding on wages of nonresident aliens has been modified and is included in Notice 1036.

New Percentage Method Tables for Income Tax Withholding Now Available

Notice 1036 includes the 2011 Percentage Method Tables for Income Tax Withholding that were developed as a result of the 2010 Tax Act. Employers should implement the 2011 withholding tables as soon as possible, but not later than January 31, 2011. Vision Payroll has already updated its tax tables and will calculate both the reduced Social Security and updated federal income tax withholding for all 2011 paychecks.

6 Comments »

  1. With the reduction in the payroll tax for Social Security in 2011, is the maximum amount that that can be withheld for the year still the same (I believe it is $6621.60) or is it also reduced?

    Comment by David R Smith — December 19, 2010 @ 9:08 pm

  2. In 2011, the maximum social security tax to be withheld by one employer for one employee is $4,485.60.

    Comment by Vision — December 20, 2010 @ 11:44 am

  3. I HAVE HEARD COMMENTS REDUCED SOCIAL SECURITY RATES

    DO NOT APPLY IN PUERTO RICO. IS THAT SO ?

    Comment by EVA SUAREZ — December 23, 2010 @ 1:05 pm

  4. There is nothing that would indicate this in the law.

    Comment by Vision — January 11, 2011 @ 12:10 pm

  5. I AND MY HUSBAND ARE MID 50 YR. OLDS, MY HUSBAND IS ON
    DISABILITY RETIREMENT FROM THE SAME LOCAL COUNTY GOVT. I AM CURRENTLY WORKING FOR. OUR YEARLY INCOME IS JUST UNDER $55,000. I JUST LOST ANOTHER $25.00 OFF MY PAYCHECK, I PAY INTO A PRIVATE GOVT. PENSION. IN THE LAST 4 YRS. OUR COUNTY CUT OUT RAISES AND COST OF LIVING INCREASE. TO DATE I HAVE LOST $125.00 OFF MY BY WEEKLY PAYCHECK. MY RETIREMENT IS GOING TO SUCK IN 10 YRS WHEN I RETIRE. I HAVE A LOT OF MONEY PAID INTO SOC. SEC. FROM OTHER JOBS, BUT BECAUSE OF THE “WINDFALL EXCLUSION” (THIEVERY) I WILL BE CUT 2/3 OF THAT.
    I’M SICK AND TIRE OF THE OBAMA ADMIN. WHY SHOULD I HAVE TO PAY FOR ALL THE PEOPLE THAT WERE LAYED OFF? VICTORIA-CINCINNATI

    Comment by VICTORIA ESPELAGE — January 12, 2011 @ 9:50 am

  6. The republicans insisted on the Making Work Pay Credit being allowed to expire yet demanded the wealthy get a huge tax decrease with all the Bush tax cuts to be extended. Why are all of us who are either retired or make less now losing even ,ore of our income?

    Comment by Jim Denton — January 30, 2011 @ 2:44 pm

RSS feed for comments on this post. TrackBack URL

Leave a comment

Contact Us Vision Payroll
Client Remote Access