We have all heard about the “Bush Era Tax Cuts” which will be hashed out by the lame duck congress (which is by the way is an unconstitutional assembly according to the 20
thAmendment). These tax cuts will have a major impact on the middle class if not extended but there is another tax “cut” that most are not aware of that is set to expire this year.
In 2009, the Obama administration and Congress enacted the “Making Work Pay Credit” which gave a $400 credit to individuals on their 2009 and 2010 tax return. This was really a decoy as the withholding tables during 2009 were adjusted to allow $400 extra through a reduction in withholding to an individual taxpayer spread out through the year. Hence, during 2009 and 2010, the bi-weekly paycheck was roughly $15 more. $400 less was withheld through the year, but made up for that with the $400 credit on the tax return. The tax did not change.
This tax credit is not part of the Bush Era cuts and will lapse in the 2011 tax year. The effect? Your biweekly paycheck will be $15 less. Add this to the possibility of a $100-$260 per month increase in taxes with the lapse of the Bush Era cuts and family making $60,000 a year will have a tizzy.
We are not done. Payroll departments do not know what the withholding rates should be yet. We have to wait for Congress to make up its mind and with the dramatic change in political parties we may have to wait till January to settle all of this.
