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Taxes and Why Your Employees’ Take Home Pay Will Change in 2011

  • Because of the Job Creation Act Passed in late December, 2010, your employees’ take home pay will change beginning in January, 2011.

    There are two reasons for this occuring:

    1. The Social Security rate has changed for your employees in 2011.  The SS tax rate for employees’ has decreased from 6.2% to 4.2% as highlighted in our previous post, The Top 8 Highlights of the 2010 Tax Compromise That Will Save You Money.  For example;  In 2010, if your employee received a gross amount for his payroll check of $1,000, 6.2% or $62 would have been deducted for Social Security taxes. In 2011, the amount taken out of an employees check for Social Security taxes will only be 4.2%.  For a $1,000 gross paycheck, he will see $42 of Social Security taxes taken out rather than the $62 per check taken out in 2010.This change is not permanent and will expire on December 31, 2011, so beginning January 1, 2012, the social security tax fro employees will increase back to 6.2%.This change was not extended to employers.  Employers will still have to pay the 6.2% rate.  The Medicare tax rates remain unchanged for both the employees and employers.
    2. The Making Work Pay Credit has not been extended.  While most employees have heard about the Social Security tax reductions, not so widely publicized, is the end of the making Work Pay Tax Credit.This tax credit was provided to employees through a reduction in their payroll federal withholding, Becuase of this credit, less federal taxes were take out of their paychecks, resulting in a higher take home paycheck.Since this tax credit was not extended, your employees federal withholdings will increase beginning in January, 2011.

    The net impact of both of these changes will be based on each indviduals circumstances.  Some employees may see a slight bump in their paychecks while others may see a slight decrease in their paycheck.