The tax skinny on this year's fatter paychecks

Woman using a computer

(ARA) — Wondering where that small increase in your paychecks came from? Take a closer look at your pay stub and you'll see that your Social Security taxes are 2 percent lower this year. The employee and self-employed portion of the FICA-OASDI Social Security taxes has been reduced to 4.2 percent for employees and 10.4 percent for self-employed.

The tax cut, also known as the payroll tax holiday, was part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 passed in December 2010. Employers had until Jan. 31, 2011, to implement the cut.

There is a $106,800 income-earned limit, which means the maximum amount a worker can receive by the end of 2011 from the 2 percent reduction is $2,136.

The payroll tax holiday replaces the Making Work Pay Credit that expired at the end of 2010 that was also distributed in paychecks but through reduced federal withholding. The credit was worth 6.2 percent of your modified adjusted gross income, up to $400 ($800 for joint filers).

Whether your 2011 paychecks are bigger depends on your earned income and whether you received the Making Work Pay Credit last year. Taxpayers making $20,000 or more this year will receive larger paychecks this year because 2 percent of income exceeds the $400 Making Work Pay Credit. On the other hand, paychecks for lower income taxpayers earning less than $20,000 will be smaller because the $400 credit exceeds the 2 percent payroll tax holiday.

"Regardless of whether your paycheck amounts have changed, you should do two things," says Jessi Dolmage, spokesperson for TaxACT. "First, review your federal withholding. Since the Making Work Pay Credit expired, you may need to adjust your withholding. If you're self-employed, review your estimated tax payments.

"Second, if you received the Making Work Pay Credit last year, you still need to claim it on your federal return that's due by April 18, 2011," Dolmage continued. "Claiming the credit cancels out the reduced federal withholding in last year's paychecks."

The Making Work Pay Credit amount is figured on Schedule M for Forms 1040 and 1040A. If you're filing Form 1040-EZ, use the designated worksheet to figure the credit. The economic recovery payments and government retiree credit that factored into the Making Work Pay Credit on last year's return expired, so figuring this year's amount is easier.

Free tax preparation solutions, including TaxACT Free Federal Edition, guides you step-by-step through the Making Work Pay Credit and all tax law changes to help you maximize your credits and deductions. They can also help you figure your federal withholding and even complete a new Form W-4 that can be printed and turned into your employer.

For more information about the payroll tax holiday and Making Work Pay Credit, visit www.irs.gov, where you can also find a free withholding calculator. To take advantage of free tax preparation, printing and filing with TaxACT Free Federal Edition, go to www.taxact.com.

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Upcoming Tax Dates

April 10 Employees who work for tips
If you received $20 or more in tips during March, report them to your employer. You can use Form 4070.

April 10 Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the first 15 days of March.

April 14 Regular method taxes
Deposit the tax for the last 16 days of March.

April 15 Individuals
File a 2014 income tax return (Form 1040, 1040A, or 1040EZ) and pay any tax due. If you want an automatic 6 month extension of time to file the return, file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. For more information, see Form 4868. Then, file Form 1040, 1040A, or 1040EZ by October 15.

April 15 Individuals
If you are not paying your 2015 income tax through withholding (or will not pay in enough tax during the year that way), pay the first installment of your 2015 estimated tax. Use Form 1040ES.

April 15 Household Employers
If you paid cash wages of $1,800 or more in 2014 to a household employee, you must file Schedule H - Details

April 15 Partnerships
File a 2014 calendar year return (Form 1065) - Details

April 15 Partnerships
Electing large partnerships: File a 2014 calendar year return (Form 1065-B) - Details

April 15 Corporations
Deposit the first installment of estimated income tax for 2015 - Details

April 15 Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in March.

April 15 Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in March.

April 15 Household employers
If you paid cash wages of $1,900 or more in 2014 to a household employee, you must file Schedule H (Form 1040). If you are required to file a federal income tax return (Form 1040), file Schedule H (Form 1040) with the return and report any household employment taxes. Report any federal unemployment (FUTA) tax on Schedule H (Form 1040) if you paid total cash wages of $1,000 or more in any calendar quarter of 2013 or 2014 to household employees. Also, report any income tax you withheld for your household employees.

April 27 Communications and air transportation taxes under the alternative method
Deposit the tax included in amounts billed or tickets sold during the last 16 days of March.

April 29 Regular method taxes
Deposit the tax for the first 15 days of April.

April 30 Social security, Medicare, and withheld income tax
File Form 941 for the first quarter of 2015. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is less than $2,500, you can pay it in full with a timely filed return. If you deposited the tax for the quarter timely, properly, and in full, you have until May 11 to file the return.

April 30 Federal unemployment tax.
Deposit the tax owed through March if more than $500.

April 30 Form 720 taxes
File Form 720 for the first quarter of 2015.

April 30 Wagering tax
File Form 730 and pay the tax on wagers accepted during March.

April 30 Heavy highway vehicle use tax
File Form 2290 and pay the tax for vehicles first used in March.

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