As you may have heard in the news, the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 was enacted on Dec. 17. The act not only included extensions to certain tax provisions, but also made some changes that affect your payroll tax withholdings and, consequently, your net pay. The major payroll provisions are summarized below.
- Federal income tax withholding - The act extended the Bush tax-cut provisions for all income levels through 2012. These are the individual federal income tax rates (currently set at 10, 25, 28, 33, and 35 percent) which determine the amount of tax withheld on your paycheck. However, the Making Work Pay tax credit that was enacted last year was not extended and expired Dec. 31, 2010. This credit was enacted as part of the American Recovery and Reinvestment Act and gave a $400 credit to most single taxpayers and an $800 joint tax credit to most married tax payers. 2010 withholding rates were adjusted to include this credit.
As a result, even though the federal income tax rates have not increased, with the expiration of the Making Work Pay credit, your federal tax withholding may increase slightly. This tax is coded Federal Withholding on your direct deposit advice and you may notice a change beginning with your first paycheck in 2011.
- Social Security tax withholding – The act cut the Social Security tax paid by employees for one year. Normally, employees and employers each pay 6.2 percent on earnings. In 2011, the employee portion of the tax will be reduced to 4.2 percent, reducing your withholding each paycheck. This tax is coded as FICA Withholding on your direct deposit advice and you should notice the reduction beginning with your first paycheck in 2011. The act requires that employers continue to pay the full 6.2 percent of Social Security and the Medicare tax of 1.45 percent will remain in effect for both employee and employer.
The new tax provisions will take effect automatically and you should review the new withholding amounts on your first 2011 paycheck. If you determine you need to modify your withholding, you can get a new W-4 form at www.beloit.edu/humanresources (click on Employee Forms from the list on the left side of the page). You will have to complete the form, print, sign and submit it to the payroll office. If you prefer a paper copy of the form or if you have questions regarding the changes in tax withholding, please contact Gail at firstname.lastname@example.org or ext. 2298 or Luz at email@example.com or ext. 2157.