More Tax Breaks

9:22 AM

    The IRS has released instructions to help employers implement the 2011 cut in payroll taxes, along with new income-tax withholding tables that employers will used during 2011.

Millions of workers will see their take-home pay rise during 2011 because the Tax Relief, Unemployment Insurance Re-authorization, and Job Creation Act of 2010 provides a two percentage point payroll tax cut for employees, reducing their Social Security tax withholding rate from 6.2 % to 4.2 % of wages paid. This reduced Social Security withholding will have no effect on the employee's future Social Security benefits.

The new law also maintains the income-tax rates that have been in effect in recent years.

Employers should start using the withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but no later than January 31, 2011. The notice contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes.

The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but no later than January 31, 2011.

Employers and payroll companies will handle the withholding changes, so workers typically won't need to take any additional action, such as filling out a new W-4 withholding form.

As always, however, the IRS urges workers to review their withholding every year and, if necessary, fill out a new W-4 and give it to their employer. For example, individuals and couples with multiple jobs, people who are having children, getting married, getting divorced or buying a home, and those who typically wind up with a balance due or large refund at the end of the year may want to consider submitting revised W-4 forms.

Taxpayers will see a variety of benefits impacting several different tax years under new legislation signed into law on December 17, 2010. These include:

  • A Two Percent Employee Payroll Tax Cut – The legislation includes an employee-side payroll tax cut for over 155 million workers, providing tax relief of about $112 billion in 2011 paychecks.
  • Extension of Unemployment Benefits – The legislation extends emergency unemployment benefits at their current level for 13 months, preventing an estimated 7 million workers from losing their benefits over the next year as they search for jobs.
  • The Child Tax Credit – The $3,000 refund-ability threshold established in the Recovery Act for the Child Tax Credit will be extended,ensuring an ongoing tax cut to 10.5 million lower-income families with 18 million children.
  • The Earned Income Tax Credit – The legislation continues a Recovery Act expansion of the Earned Income Tax Credit worth, on average, $600 for families with 3 or more children, and reduces the "marriage penalty" faced by working married families. Together, these enhancements to the EITC will help 6.5 million working families with 15 million children.
  • The American Opportunity Tax Credit- The new American Opportunity Tax Credit – a partially refundable tax credit worth up to $2,500 per student per year that helps more than 8 million students and their families afford the cost of college – is continued.
  • 100 % Expensing – The legislation temporarily allow businesses to expense 100% of certain investments in 2011, potentially generating more than $50 billion in additional investment in 2011, which will fuel job creation.
  • 1603 Renewable Energy Grants – The agreement extends the 1603 program, which provides payment in lieu of renewable energy tax credits and is helping to support tens of thousands of jobs in the wind and solar industries.
If you have any questions about online tax preparation or online tax help please contact us at onlinetaxpros.com.

by: Sandi


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