2011 Payroll Tax Withholding Tables

As you've probably heard by now the Bush era tax cuts and unemployment benefits have been extended and then some.  As part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act, the 2011 payroll tax withholding tables reflect not only the continuation of the lower tax rates enacted back in 2001 but also a lower Social Security tax rate for employees (4.2%). 

In view of these changes employers will need to make sure that their first payrolls in 2011 have the correct
 tax tables and reflect the lower Social Security tax rate.  The new tables are now available from the IRS so the updates from your payroll software providers will soon be available.  You'll want to get the updates as soon as possible to avoid having to make adjustments later.  For companies that use a payroll service presumable these updates will be implemented by the first 2011 payroll.  If you do your payroll in-house the tax tables software updates are usually available shortly after year end.  The Social Security tax rate update is probably the most important update to make because this will be the hardest thing to correct if you over withhold ie use 6.2% vs. the new 4.2% rate.  This change, depending on the payroll software, can be made manually if you do not have the software updates in time.

The making work pay credit expires at the end of 2010 so even though the Bush era tax rates were extended the tax table will change because this credit expired.  The option of receiving advance earned income credit payments also expires at the end of 2010.

Contact me should you need assistance getting your payroll system ready for the new year.

Andrew J. Jordan, CPA