On December 17, 2010, President Obama signed into law the Tax Relief Act of 2010. There are some significant changes which may affect your RCUH paychecks for 2011:
(1) Social Security Tax
Effective 1/01/11, the Tax Relief Act of 2010 provides for a temporary reduction of the Social Security tax. The employee’s rate for 2011 will be lowered to 4.2% while the employer’s rate remains at 6.2%. There is no change to the 1.45% Medicare tax withholding rate for both employees and employers.
The descriptions of the Social Security tax and Medicare tax on your pay advices are “Fed OASDI/EE” and “Fed MED/EE” respectively.
(2) Federal Income Tax
The Making Work Pay Credit expires on December 31, 2010. This credit ($400 for single individuals and $800 for married couples) was incorporated into the 2010 withholding tax tables so that your federal income tax withholdings were reduced. With the expiration of this credit, new withholding tax tables will be used to calculate your federal income tax withholdings for 2011.
(3) Advanced Earned Income Credit
The Advanced Earned Income Credit is being eliminated as of January 1, 2011, restricting employers from advancing portions of the Earned Income Credit through the employee’s paychecks. Eligible employees will have to wait until they file their 2011 personal income tax return in 2012 to receive the tax credit.
For more information, please refer to IRS Notice 1036 at http://www.irs.gov/pub/newsroom/notice_1036.pdf .