Employee Tax Rate for Social Security Reduced to 4.2% for 2011; Other Tax Law Changes Will Impact Employee Take-Home Pay
January 3, 2011
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010 enacted a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2% to 4.2% of wages paid. The University has implemented the adjustment and employees will see the change reflected on their 2011 Earnings Statements. This reduced Social Security withholding will have no effect on the employee's future Social Security benefits.
The new law does not change other Social Security provisions for 2011:
The amount listed on employee Earnings Statements as SOC SEC is the total of the Social Security and Medicare tax withholding, which is sometimes referred to as Federal Insurance Contributions Act (FICA) tax.
Federal Tax Withholding Tables Change For 2011
IRS Notice 1036 provides a summary of the recent tax law changes and includes the 2011 percentage method income tax withholding tables. The Making Work Pay credit expired on December 31, 2010; therefore the 2011 income tax withholding tables do not reflect this credit. As a result, employees in a lower income tax bracket may see an increase in their tax withholding amount, while employees in a higher tax bracket may see a decrease.
Other changes include the December 31, 2010 expiration of the option of receiving advance payroll payments of the Earned Income Credit. The gross-up withholding amount for most nonresident alien employees will decrease.
Several federal tax provisions are unchanged in 2011. The new law maintains the income-tax rates that have been in effect in recent years. The monthly limit on the value of qualified transportation benefits (parking, transit passes, etc.) provided by an employer to its employees, remains at $230.
State of Wisconsin income tax rates also remain the same for 2011.
Employees are encouraged to review their federal income tax withholding every year; individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting a new W-4 Form. Publication 919, How Do I Adjust My Tax Withholding?, provides information on making changes to federal income tax withholding.
Related Links: IRS News (IRS-2010-124), IRS Notice 1036, IRS News (IRS-2010-127)
Source: IRS and UW Service Center
Categories: Tax