Implemented the 17th of December in 2010, The 2010 Tax-Relief, Unemployment Benefits Renewal, and Job Creation Act introduced many changes involving employees net compensation and retirees net pension for 2011.
Delaying a hefty increase in the withholding of federal income taxes, The Tax Relief Act provided a two year extension of rates on income tax that were due to expire by the close of 2010.
Still, no extension on the availability of the 2009 and 2010 MWP (Making Work Pay) credit was provided in this new law.
Most employed Americans were eligible for the MWP maximum credit amount while pension recipients were unable to qualify at all without having also earned employment or other similarly sourced income.
A new federal income tax was published by the IRS in December 2010 to match the changes resulting from the Tax Relief Act.
With the MWP credit having expired, increased withholding for most taxpayers was already a reality.
Withholding for social security taxes of all employees decreased from 6.
2% to 4.
2% (Medicare withholding; at 1.
45%, remained unchanged).
The majority of employees will find the net effect of both these changes to be one of less taxes being withheld from their paychecks.
Pension payments are not impacted by the reduction in social security tax.
As a result of the late implementation of changes to these tax laws, the IRS requested that plan administrators and employers update their policies as soon as possible and no later than the 31st of January 2011.
Consequently, the total impact of theses changes may not have been seen by employees and pension recipients before their first check in February 2011 was received.
After these changes have been implemented by employers, there will be an increase in the net compensation for most employees (independent of impacts that any other withheld amounts; e.
g.
state income tax, health insurance, etc.
).
After administration of pension plans has put the changes for 2011 in effect, retirement payments for some pensioners may decrease based on the method used by the administrators to calculate 2010 withholding.
A table for 2009 and 2010 was published by the IRS published to give plan administrators an option to increase pension recipient withholding since the MWP credit was not available to pensioners.
This option was not exercised by all plan administrators as some chose to allow pensioners to make related adjustments when filing their tax return paperwork.
Since the expired credit is not reflected in the 2011 withholding tables, pensioners in these situations will likely see their 2011 pension payments have a withholding increase of approximately $7 to $50 on each check, based on filing status, payment amount, and payment frequency.
It is encouraged by the IRS for both employees and pension recipients to review their withholding annually using the withholding calculating tool on IRS.
gov website and, if necessary, complete a new W-4 or W-4P form and submit it to their employer or pension administrator.