One of my many tasks for my employer is to process the payroll and print out checks. Since we are all salaried and paid twice a month, this is usually an easy and - dare I say – almost boring task since usually everything stays the same month after month. However, the first payroll run of the year added some excitement and was actually a bit of a challenge because of the 2011 tax changes, namely the federal income tax and the decrease in Social Security deductions meant that everyone’s check would need to be recalculated with the new data. Since we do have an electronic accounting system, this is done automatically once we install the payroll module updates, but in addition to our accounting system we keep a payroll recap in an Excel spreadsheet so that we can verify the two against each other and make sure that we haven’t forgotten something. I have caught mistakes enough times to recognize the necessity of having a secondary way to check the calculations.
There was also the question as to whether we would see an increase in pay. Two departments have already received a raise, and the remainder of staff typically receives its raise in January. We had to wait until the board had their monthly meeting in order to find out if the rest of us could expect more in our checks. As it turns out, we waited for nothing, as the executive board members were not present to discuss this topic. We were told they would discuss it soon, and raises would be retroactive for January if approved.
When I first saw that we were going to be paying less into Social Security (this seems like a bad idea to me) I thought we would end up with an increase in our paycheck, but when I started the payroll process I saw that the federal taxes had increased for every staff member. I keep reading that the Bush Tax Cuts will be extended and that Obama’s 2011 budget does not include tax increases for single persons making less than $200,00 and couples making less than $250,000. In turn, I expected the federal tax deductions to remain stationary. Instead, check out what I found. This an image with some sample numbers comparing the deductions of 2010 to 2011, according to the IRS tax instructions booklet for employers, Circular E.
As you can see, a single person with no exemptions making $495 twice monthly used to pay $27.00 in federal incomes taxes, but is now required to pay $43.50. Last year they were paying 5.45% of their gross towards federal, but now they are paying 8.79%.
All the annual wages are well under $200,000. I guess I don’t know what the “Bush tax cuts” actually entail… apparently they and President Obama’s claim that he wouldn’t raise taxes for folks making less than $200,000 in reality has nothing to do with federal income taxes. Someone care to enlighten me?
For my own paycheck, because 2% less than usual will be removed for Social Security, in spite of the increased federal withholding, I will be taking home an additional $34 each month. I decided to have my savings deduction increased so that I won’t see the money in my take home pay.
I also discovered that the option to take Advanced Estimated Tax Payments ended on December 31st, 2010. We have never even looked into this option until just this month when one of our employees could have benefited from it. When I started researching I found it’s not an option any longer. The recommendation is to simply have less money removed from one’s federal withholding.
In other interesting lists for 2011, here is a list of the stock market holidays. My frugal grandmother told me once upon a time that she played the stock market, but she never went into any details. I think she just worked hard and was extremely frugal.