We’ve all heard that Congress voted not to increase our payroll taxes, but it looks like there’s more federal withholding being taken out of your paycheck. What’s up with that? Well, the income tax rate didn’t go up, but the “Making Work Pay” credit was taken out. Because that credit it gone, your payroll withholding has gone up (somewhere between $400 and $800 per year depending on your filing status.)
The other change that we’ve heard about is that the Social Security withholding went down from 6.2% to 4.2%. This makes your payroll withholding go down. Depending upon how much you make, this might give you more take home pay than before, for others, it’s the opposite. (Here’s a clue, the more money you make, the bigger this deduction will seem.)
If you get a pension, and not wages, the increase in the withholding will hit you harder because you don’t have social security withholding.
Now for many people, the payroll tax changes were not set up correctly for their first paychecks of the year. Please don’t blame your payroll department; the changes came so late in the year, that computer programs were not programmed for the new rules. This made for some crazy adjustments that showed up in later checks. Hopefully, by now, your paycheck should be normal.
It’s always a good idea to check to make sure your payroll withholding is right. The IRS has a withholding calculator that you can use to see if you’re on target for next tax season. You might want to wait another week or so to make sure that all of the payroll adjustments are done and that you’ve got a “normal” check to look at before running the numbers through the calculator. If you use a check with “adjustments” in it, the numbers will be crazy so make sure you’ve got at least two checks in a row that have the same withholding numbers in them.