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You may not get a payroll tax cut

Low-income workers may actually pay higher taxes this year, with the loss of the Making Work pay credit.

By Kay Bell Jan 17, 2011 3:22PM

I'm hearing a lot of grumbling about how the highly touted 2 percent payroll tax cut is not working.

 

Some companies may not have yet instituted the new payroll tax tables to take the 

reduction from 6.2% to 4.2% in employees' withholding. This is the portion that goes toward Social Security and will apply to up to $106,800 of income made by all workers.

 

But the unfortunate fact of the matter is that folks who make well less than the six-digit wage base cutoff aren't likely to get anything from the payroll tax cut. In fact, some will see less, not more, in their paychecks this year.

 

The problem, as I discuss in payroll tax losers, is that we have a converging of the old Making Work Pay tax credit, which was in effect through 2010 and which will be claimed on tax returns filed this year, and the new payroll tax cut.

 

That now-expired credit provided most workers with $400, or $800 if they were married and filed a joint return. The new payroll tax cut won't get to the $400 level for a worker until he or she makes $20,000 or more.

 

That means, according to number crunching by the Tax Policy Center, that almost 51 million taxpayers will see their taxes go up in 2011.  And most of those folks make less than $35,000. 

 

Low-income workers are the only income group that will lose income this year compared to 2010 under the recently enacted Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, notes the Center for Economic and Policy Research (CEPR). Other groups, says the Washington, D.C.-based nonprofit, will receive a bigger tax cut in 2011 than in 2010.

 

CEPR has put the Tax Policy Center calculations into a graphic for easier illustration.

But whether in text or images, the bottom line is that this year some folks will not get the tax savings that others will.

 

When the bean counters did the math, this probably worked well, given that back then they were operating under pay-as-you-go and had to find some tax money to offset new or continued taxes.

 

But judging by just who the tax cut losers are, I'm pretty sure this is not exactly what Obama had planned when he agreed to the tax deal.

 

And I suspect the administration, at least from a political perspective, will be glad to see this temporary payroll tax cut end Dec. 31.

 

More from Don't Mess with Taxes and MSN Money:

 

VIDEO ON MSN MONEY

3Comments
Jan 18, 2011 11:09AM
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For most folks the increased cost of benefits, especially health insurance more than offset the meager and temporary reduction in the Social Security tax.

 

Even if you are paying less in SS the increased cost of benefits means you still get a smaller paycheck.

Jan 19, 2011 4:17PM
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I say EVERYONE should pay Federal Taxes, at least a few %points.

As it is, a huge percentage of the public gets refunds for taxes they never paid and gets tax credits/phony refunds they never paid in.

Much of this is due to the 'tax credits.'

Until everyone 'shoulders the economic load' no one will ever understand how much those that DO pay taxes are taxed.

 

The SSecurity "holiday" of 2% is just another dumb thing to come out of Congress.

SSecurity has no money, since Congress replaced with IOU's decades ago.

We need a new Congress and an incoming group of 18 year old voters who understand the politics and economics of this country.

Jan 18, 2011 4:49PM
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It doesn't make any sense to bail out banks and others that hid their profits in off shore accounts and not afford the rest of us the same opportunity. As long we have this special treatment of the upper class, the rate tax frustration will continue on past the point of no return. As of now I'm damn tired of paying taxes while viewing smiling politicians on TV.
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