Monday, January 10, 2011

Public Service Announcement

Since money is on my mind and all...

On December 17, 2010, the United States Congress passed the Tax Relief Act of 2010. Most of you know this act extended the Bush-era tax cuts. Which, say what I will about Bush, when I do the math on what my federal income tax responsibilities would be without them, I'd not be nearly so encouraged about my own debt situation currently. Still...I hated that guy!

What you may not know is that, in addition to extending the tax cuts, the act includes a 1-year, 2% reduction to Social Security tax withholding effective January 1. In essence, we will see a bit of an increase to our take home pay.


Of note: Remember back when Obama first took office and he pushed through the "Making Work Pay" credit as part of his economic recovery package? If you recall, this was his idea of a true stimulus check. Instead of sending out checks to all taxpayers for a lump sum, he gave us little bits in each paycheck.

And I know a lot of people were upset about this because it's way cooler to get a few hundred clams (as modchen would say) all at once. However, the reasoning behind it - and I have to say, Jeebus, this guy is smart - is that the intention was to get people to SPEND this money. Not save it. And there were a lot of people at the time who were likely to sock a big lump sum away just in case. But most people - myself most definitely included - didn't think twice about spending that extra $33.33 a month.

Back to the point. Anyway! So yeah, the "Making Work Pay" credit came to a halt at the end of 2010. This will cause a slight increase to federal income tax withholding - how much depends how often you get paid.

To sum up effective January 1:

-  Federal income tax withholding will increase - but only slightly.
-  Social security withholding or OASDI will decrease by 2%.

Personally, the net effect will be about a 1.5% increase to my take home pay. Sweet.

However, here's a little bad news for those of you expecting to file your 2010 tax return ASAP in order to get your refund ASAP.

Because of the late hour at which Congress acted, the IRS is scrambling to change the 2010 forms to accommodate the new laws. The new forms will not be ready until mid-February and the IRS anticipates refunds will not start going out to people until March at the earliest.

Sorry, Charlie.

Additionally, employers are also scrambling to update payroll software to accommodate the new tax rates - for the extension of the Bush tax cuts and the decrease to Social Security withholding. Employers have until January 31 to make the changes. They are then responsible for issuing refunds of the extra OASDI withholding (they will have until March 31 to get those refunds to you).

So there. You're welcome.

PS The IRS website appears to be inaccessible at the moment which is why I linked to the article regarding the Tax Relief Act of 2010.

PPS If you're expecting a ginormous refund from the feds, I'd like to make a suggestion. Perhaps you ought to consider adjusting your withholding so that you're having JUST ENOUGH taken out instead of giving the government an interest-free loan every year. I'm just saying. If you like it in a lump sum, consider putting the extra in an interest bearing savings account and withdrawing it all at once on April 15. At least then YOU'RE getting the little bit of interest on YOUR money.


Matt said...

Damn! As a state employee, I don't pay SSI, I just pay PERA. Doubly screwed! Arrggh! Heh.

Just Jane said...

Oh yeah. Boo. I forgot about that. Sorry to all my Public School friends too. This won't include you.