Increase in Federal Withholding

A library employee recently noticed an increase in tax withholding on his 2/16/11 pay check and asked me for information. My research discovered some interesting information that should be shared library-wide. For those of you that may be asking “Why did my Federal Withholding increase in 2011,” or “Why is my net pay less than it was?” here is a website that addresses the two questions rather nicely: http://forums.blackbaud.com/blogs/fundaccounting/archive/2011/01/10/why-did-federal-withholding-increase-in-2011-why-is-my-net-pay-less-than-it-was.aspx

In layman’s term the Federal Government reduced the Social Security tax also know as (FICA-OASDI) from 6.2% to 4.2%, effective January 1, 2011. It shows up on our pay advices as “Fed OASDI/EE”. What we didn’t hear was that the “Jobs and Growth Tax Relief Reconciliation Act” of 12/2011 did not extend the “Making Work Pay Credit Act” of 2003, which reduced federal withholding and resulted in more income going into employees’ paychecks.

What all of this mean for biweekly paid employee is that the 1/5/11 & 1/19/11, paychecks did not reflect the reduced 2% Fed OASDI/EE. To correct this problem Payroll department placed the refund for both of these pay periods in the 2/2/11 paycheck. For monthly paid employees your end of January pay check will reflect the correct deduction for your Fed OASDI/EE.

In contrast, the expiration of the “Making Work Pay” credit will result in an increase to the Federal Withholding tables. For most biweekly employees, you’ll see an increase in Federal Withholding on the 2/16/2011 pay check.  That amount should be the normal federal withholdings in future checks. For Monthly employees your end of February pay check will reflect the increase in your “Fed Withholding”.

I would advise everyone to consult with their tax accountant or tax consultant on how to change one’s W4 forms to offset any undesired increases from the above changes reflecting in your pay checks.  Here is the new IRS tax Withholding:  http://www.irs.gov/pub/newsroom/notice_1036.pdf

Hope this information was helpful.

Website References:

Blackbaud. (2010). The FundWare Post: The Official Blog of FundWare: Why did Federal Withholding increase in 2011? Why is my net pay less than it was? Retrieved from http://forums.blackbaud.com/blogs/fundaccounting/archive/2011/01/10/why-did-federal-withholding-increase-in-2011-why-is-my-net-pay-less-than-it-was.aspx

Department of the Treasury Internal Revenue Service. (2010). Notice 1036: Early Release Copies of the 2011 Percentage Method Tables for Income Tax Withholding. Retrieved from http://www.irs.gov/pub/newsroom/notice_1036.pdf

Fivecentnickel.com. (2011). Did Your Federal Tax Withholding Increase? Here’s Why… Retrieved from http://www.fivecentnickel.com/2011/01/07/did-your-federal-income-tax-withholding-increase-heres-why/

HubPages. (2010). Federal Payroll Tax Withholding Tables for 2010, 2011 65. Retrieved from http://hubpages.com/hub/Federal-Payroll-Tax-Withholding-Table-for-2009–2010

Intuit. (2011). Small business, rejoice. Federal Tax Withholding Tables and Social Security Tax changes for 2011: Overview: Retrieved from http://payroll.intuit.com/support/kb/2000996.html

IRS.gov. (2010). Payroll Tax Cut to Boost Take-Home Pay for Most Workers; New Withholding Details Now Available on IRS.gov. Retrieved from http://www.irs.gov/newsroom/article/0,,id=232590,00.html

–Sheena Waggoner