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Why Your Tax Withholding Went Up

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There have been a lot of commenters wondering why their tax withholding went up this year after hearing about the stimulative 2% payroll tax holiday passed last year. The 2% payroll tax holiday reduced the normally 6.2% Social Security withholding to only 4.2% but some people have seen their withholding go up. What gives?

Last year, the Making Work Pay credit reduced everyone’s income tax by 6.2% up to $400. Anyone who earned over $6451 received a maximum $400. That credit expired this year and was effectively replaced by a 2% reduct that had a much higher ceiling, $2,136.

How the difference affects you:

  • If you earn more than $20,000, then you should see a reduction in your withholding because a 2% of $20,000 is $400.
  • If you earned less than $20,000 then you’ll see an increase in your withholding because the 6.2%, even with a $400 cap, is higher than the reduction of 2% in Social Security.

Finally, your employer may not have implemented the payroll tax holiday yet, the IRS gave them a January 31st to fix it with any differences reconciled by March 31st. While your Making Work Pay credit has definitely been removed, the payroll tax holiday may not be implemented yet.

Who said taxes weren’t fun? :)

{ 11 comments, please add your thoughts now! }

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11 Responses to “Why Your Tax Withholding Went Up”

  1. Matt says:

    “Last year, the Making Work Pay credit REDUCED everyone’s income by 6.2% up to $400.”

    Shouldn’t it be increased?

  2. RB Boren says:

    There’s obviously a misformed statement there but I’m not awake enough to figure out the right answer.

  3. freeby50 says:

    The $400 figure is for a single filer. Married couples get up to $800.

  4. zapeta says:

    My withholding will be going up a lot without the Making Work Pay and the fact that I don’t pay in to SS. Ugh…

  5. Makes sense. I’m so glad that I don’t live paycheck to paycheck. This could have ruined my week! Living on half of my income is much more relaxing! :)

    • Maddhatter says:

      Although not at half, I’m comfortable enough to just roll my eyes at this. Why not take care of taxes for the following year before the last minute? “Fail to plan, plan to fail” comes to mind and right now it is kind of a mess.

  6. interesting. and disappointing to many, i’m sure.

  7. eric says:

    Mine went down and my employer was on top of things. Can’t complain :)

  8. jsbrendog says:

    this whole thing confuses the hell out of me. i honestly have no idea whether i get more money, less money, a shot in the face….

  9. joe denapoli says:

    i am on ss and a private pension. are the old timers left out of this new stimulus? my withholding on my pension increased. im taking home less money in 2011

  10. really? says:

    yes, why is people on SS and private pension paying more? i’m close to 100 dollars less then normal. There goes my grocery money. Thank you.


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