Tax credit ends, but payroll tax cut boosts paycheck - wave3.com-Louisville News, Weather & Sports

Tax credit ends, but payroll tax cut boosts paycheck

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Diane Kilner, CPA Diane Kilner, CPA

By Katie Bauer email | bio

JEFFERSONVILLE, IN (WAVE) – From the Social Security tax shrinking to a spike in the federal withholding amount, it's hard to keep it all straight when you take a look at your paycheck.

Diane Kilner is a tax manager for McCauley, Nicolas & Company in Jeffersonville and she's taken several calls from customers noticing their federal withholding amounts have changed. "Actually the tax rates did not increase, it's actually the Making Work Pay credit that went away," said Kilner.

The Making Work Pay credit was only in effect for 2009 and 2010. "It's $400 a piece or $800 a couple," said Kilner.

That's gone, and this year, there's a new act which equals a two percent payroll tax cut. It's called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

The bottom line, your Social Security tax ends up being reduced. "In the past you are going to pay this 6.2 percent Social Security tax, and this year you are only paying 4.2," said Kilner.

To put this all in perspective, while it's true those who earn an income no longer have one tax credit, because the Social Security tax rate has decreased people may actually bank more money this year.

"In a lot of cases, you are actually going to have a higher paycheck, not a lesser pay check depending on what your income level is," said Kilner.

An important thing to keep in mind for ext year, Kilner says the Social Security tax will go back to 6.2%.

If you believe your current withholding is not right, you can check it, using the withholding calculator.  All you have to do is click, here.

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