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

August 1 — Form 720 taxes
File Form 720 for the second quarter of 2016.

August 1 — Wagering tax
File Form 730 and pay the tax on wagers accepted during June.

August 1 — Heavy highway vehicle use tax
File Form 2290 and pay the tax for vehicles first used in June.

August 1 — Social security, Medicare, and withheld income tax
File Form 941 for the second quarter of 2016. Deposit or pay any undeposited tax under the accuracy of deposit rules.

August 1 — Certain small employers
Deposit any undeposited tax if your tax liability is $2,500 or more for 2016 but less than $2,500 for the second quarter.

August 1 — Federal unemployment tax
Deposit the tax owed through June if more than $500.

August 1 — All employers
If you maintain an employee benefit plan, such as a pension, profitsharing, or stock bonus plan, file Form 5500 or 5500EZ for calendar year 2015. If you use a fiscal year as your plan year, file the form by the last day of the seventh month after the plan year ends.

August 10 — Employees who work for tips
If you received $20 or more in tips during July, report them to your employer - Details

August 10 — Social security, Medicare, and withheld income tax
File Form 941 for the second quarter of 2016. This due date applies only if you deposited the tax for the quarter timely, properly, and in full.

August 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 July.

August 12 — Regular method taxes
Deposit the tax for the last 16 days of July.

August 15 — Social security, Medicare, and withheld income tax
If the monthly deposit rule applies, deposit the tax for payments in July.

August 15 — Nonpayroll withholding
If the monthly deposit rule applies, deposit the tax for payments in July.

August 25 — 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 July.

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

August 31 — Heavy highway vehicle use tax
File Form 2290 and pay the tax for vehicles first used in July.

August 31 — Wagering tax
File Form 730 and pay the tax on wagers accepted during July.

View More Tax Dates