Federal Income Tax Rates Went Down but Your Federal Tax Withholding Increased. Here’s Why…
In the past few days, I’ve heard from several readers who noted that their federal income tax withholding has increased in 2011 despite the fact that 2011 income tax rates will be unchanged from 2010.
This situation has been made more confusing by the so-called Payroll Tax Holiday, which knocks 2% off your Social Security taxes. If income tax rates are the same, and your Social Security taxes have decreased, why has your withholding increased?
For starters, the Making Work Pay tax credit has expired. Unlike most income tax credits, which can be claimed when you file your taxes, the Making Work Pay credit was given out incrementally via reduced federal income tax withholding during 2010.
It’s also important to note that, the Payroll Tax Holiday is a separate issue entirely, and it affects a different line on your check stub. As I noted above, this affects your Social Security taxes, which are typically listed as FICA-OASDI on your check stub.
While the Payroll Tax Holiday went into effect on January 1st, the IRS has given employers until January 31st to implement the changes in their payroll systems, with an expectation that any over-withholding be rectified by the end of March.
So… If you’ve seen an increase in federal income tax withholding (or failed to see a decrease in Social Security withholding), you now know why.
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Reasonable efforts are made to maintain accurate information. See the Discover online credit card application for full terms and conditions on offers and rewards.
Modified on January 9th, 2012 - 186 Comments
Filed under: Taxes, Working
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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186 Responses to “Federal Income Tax Rates Went Down but Your Federal Tax Withholding Increased. Here’s Why…”
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February 1st, 2011 at 10:22 am
I just received my retirement check and it’s $32.00 less then last month. That’s $384.00 per year!!! My Social Security hasn’t increased in 2 years.
What creditor do I tell that I can’t pay their bill? I guess it will come out of our food budget AGAIN this year. Thanks Obama, hope you enjoyed your Haiwian vacation.
February 1st, 2011 at 11:07 am
Retirees got screwed again, thanks so much Obama administration. Can’t trust a thing they say. Retirees don’t get the Social Security difference. Where’s the “helping out the middle class retirees” part that you hear coming out of his mouth every speech. Voters need to get together and vote the current Obama administration out!
February 1st, 2011 at 11:13 am
OK EVERYONE CAN RELAX. THE TAX INCREASE WAS A MISTAKE BECAUSE CONGRESS TOOK TOO LONG TO GET THE CORRECT TAX INFO TO OPM AND IRS. THERE WILL BE NO TAX INCREASE AND YOU WILL BE REIMBURSED FOR THE AMOUNT THEY TOOK OUT IN JAN. SEE MIKE CAUSEY’S FEDERAL COLUMN ON THE WEB SITE.
WE CAN ALL BE HAPPY NOW AND SOME OF YOU SHOULD TAKE BACK YOUR NEGATIVE COMMENTS ABOUT THE ISSUE. CAN I GET AN AMEN.
February 1st, 2011 at 11:24 am
I’m also a fed retiree, but live in Argentina now. Much cheaper and much more fun. The good times are over up north. The party that has been going on for most of our lives has come to an end and now is time for the hangover to begin. Everything will become more expensive up there and you will see your incomes reduced more and more by taxes. Down here I live well on half of my pension so the increase in withholding was not an issue. I saw the mess up north coming years ago and decided it was time to move on. Those of you who can, I would advise you to do the same. And Good Luck!!
February 1st, 2011 at 11:48 am
Bill Price,
Please include the website you refer to in your post – I would like to read it. Amen!
February 1st, 2011 at 11:58 am
My pension chk was fine in Jan, it’s this month’s chk that decreased by $41 due to a FEDERAL tax increase, which I’m told is due to a change in the tax tables (or something like that). Anyway, was told it will continue. If things keep up like they are going, we’ll be eating dog food in three years.
February 1st, 2011 at 12:41 pm
Bill-I read the article and not sure if it is why our rates changed. There is no mention of the ‘making work pay’ credit that apparently did not get extended with the Bush tax cuts. Since no information was provided with our stubs in January, this has caused a lot of confusion. I guess we’ll have to wait and see on our Feb. check. I called my pension system office and they said this happened because of tax law changes and gave no indication that they had to re-program these changes, which by now they should be informing their retiree’s, especially if they are getting phone calls about the situation.
February 1st, 2011 at 12:52 pm
Our Health Insurance went up $127. per month and were shocked to see the Fed. Tax went up $47.50 per month. Our monthly income is now what it was in 2002! The only way we can fix this is vote these people out of office, if we can survive that long. Back to the Health Ins.– we were paying $396.00 per month and it went to $527.00 I am just sick and angry about the shape our country is in.
February 1st, 2011 at 1:01 pm
Yes, Please include website info…..communication helps.
Thanks!
February 1st, 2011 at 1:14 pm
http://www.federalnewsradio.co.....id=2254464
There you go! Lame duck by our very caring politicians….Figures…
February 1st, 2011 at 1:31 pm
My pension check was only $3.00 less in January but February just came with a $45.00 decrease! WHY???????????
February 1st, 2011 at 2:12 pm
I think Egypt has the right idea!
Let’s start taking notes……
February 1st, 2011 at 2:22 pm
Oh we don’t need to take back our negative comments there is enough tings screwed up that warrent negative comments. And I am not going to “tone down” my exercise in free speech!
February 1st, 2011 at 2:48 pm
Here’s a link to one site that handles this tax hike. Maybe this snafu will get worked out and we can hold off such a hike for a couple of years:
http://theview.abc.go.com/foru.....ees-checks
February 1st, 2011 at 3:46 pm
More lying, bullshit, double-talk from the Obama abomination. I am a retired teacher, my wife works part-time, about 12 hours per week. She is making $2.00 (TWO DOLLARS) more a week, and my monthly pension check just got REDUCED by $53.00 a month. Even with the Bush tax cuts re-installed and Social Security tax being reduced by 2%.
Bruce C. is right, the retired middle class got screwed again by Obama and the stinking Democrats. G
February 1st, 2011 at 6:30 pm
Retirees don’t pay Social Security, they’ve lost money because of the expiration of the work for pay tax credit of $400 single, $800 couple. For most working people, the expiration of the tax break is made up by the cut in the Social Security withholding tax.
February 1st, 2011 at 7:16 pm
What we as voters need to do is demand truth in all statements these two faced lying politicians say! You need to get off your soap box and demand the change we were promised, or vote the SOB out. We to do what the egyptians are doing and use our right to protest for change. Hey the republicans only care about the rich not the working class.
February 1st, 2011 at 8:38 pm
One thing for sure. When I am living in my card board box under an overpass somewhere… [message redacted]
February 1st, 2011 at 8:54 pm
Oh geez! Derrell, it’s dumkoph comments like yours that cause innocent people to be seriously wounded, or worse yet, killed! Read that: TUCSON, AZ a few weeks ago!
February 1st, 2011 at 9:29 pm
I AM RETIRED MY PENSION CHECK WAS 48.00 LESS THIS MONTH I DID HEAR ANY NNEWS MEDIA RESPOND ABOUT THIS.
February 1st, 2011 at 9:30 pm
I have previously commented on this blatant disregard for the middle and lower class individuals, especially retirees. A TIP, if you are a veteran and served at least 1 day during war time, you might be able to claim a non service connected disability through the VA. Give it a shot, I know people who are receiving a pension based on this. Just google it and read. Think about PTSD if you served in Viet Nam.
February 2nd, 2011 at 10:45 am
You people who blame Obama and democrats for your increase in income tax witholding don’t know what you are talking about. It was Obama who got you the Making Work Pay tax reduction to begin with. It was always set to expire at the end of 2010. It was part of the AARA stimulus money that Repugnacans were/are against. It isn’t the Democrats fault that most of you didn’t even realize that you got a tax reduction. You are too busy listening to FOX news and the GOP lies.
February 2nd, 2011 at 11:31 am
amen, jmellis! I, too, am retired. I got the income tax REDUCTION last year and the reinstatement of it this year. Net Zero. Do your homework people before you start spouting your GOP crap!
February 2nd, 2011 at 7:35 pm
Better way to get back is to have $o fed wh tax and file qtrly estimates; this way they get there money
Qtrly not monthly even though its the same; You are in control and it screws up their CASH Flow; better yet make sure you dont get a refund; theu have YOUR money for along time NO INTEREST is paid makes ME happy!
February 2nd, 2011 at 10:06 pm
My pension bank account deposit was also down $48. I sent an email to my taxpreparer as to why?No answer yet.I began to goggle this issue and came to this blog.Thanks for all the info. It doesn’t seem a tax program error, it seems like the work for pay tax credit expired and we need to pay the Government back.That’s areal good deal?
February 2nd, 2011 at 11:08 pm
i am an annuitant and we have not had a cost of living raise in two years.it is a shame that our federal and state taxes were increased.Our president must have something to do with not stopping this.what is our country coming to.they are trying to balance the buget on the backs of the poor folks. obama need to do something about this and quick.he is talking out of two sides of his mouth. more folks are going to lose their homes. my retirment check was decreased by $59.00 with the health insurance increase.obama extended the bush tax cuts for everyone but our taxes were still raised.I am begging obama to do something or we have no choice but to vote him out.if he is not responsible he need to tell the people who and what is responsible.if he is not responsible he need to say so or he will be voted out in 2012. if the republicans are responsible please let the people know.the democrates lost the midterm election because they don’t defend themselves.we need a cola increase.
February 2nd, 2011 at 11:25 pm
I feel like I am being penalized for sticking with a company 39 years and being able to retire on service……just to have the rug pulled out from under me. It’s a shame we have to notice our checks are less and then have to scrounge around to find out why!!
February 3rd, 2011 at 12:00 am
It’s a shame that a person works 30-40 years to have a retirement check and then get it screwed around with so the rich can get richer. We all see our paychecks decreasing but I doubt very seriously if the politicians have to worry about their paychecks decreasing. No wonder people sit around on their butt and collect unemployment checks, doesn’t seem to matter if you work all your life or not, you still get screwed by the government and moving out of the country seems to be our best choice. Or we can pray that God will come and take us all home where we don’t have to worry about paychecks!!!!
February 3rd, 2011 at 12:09 pm
Hi everyone, i posted this to my friends on face book on February 1, 2011 out of hurt and anger: there is a horrific thing going on..It seems that our last President Bush, allowed a great decrease in the tax bracket of the rich, which our President Obama had to continue because the Republicans would not accept anything else…..So the decrease to 39% Bush started for the rich stay s in place. President Obama had to compromise to keep peace with the Republicans. The rich Republicans said they will give to their favorite charity if Bush s farce is allowed to continue..Robertson my belief is the rich Democrats feel the same. if i may be so bold as to say all rich people are partaking of this this this oooooooo am to angry…
Now here is the catch 22…In order for the economy to stay some what afloat…Guess who is footing the bill…
This morning i started the process of paying my monthly rent, to my surprise my monthly income had decreased. So say i to one self Hmmmmmm why is this…After researching all, found out that people as myself are footing the bill… For out of my pension check that i worked too hard to mention for and took mental abuse to the point of it some what becoming physical if you understand that…To say one was astounded is a far cry from my actual belief..that here i am little ole me receiving my pension check with 33 dollars less money.. Why because the federal government has increased their deduction.
12 x 33 = approximately 396 to 400 dollars a year. which if all those working and receiving a pension for retirement as my self…That is a lot of green..Sad thing is it will not help the budget in any form fashion nor way, for if we receive less money we spend less money business s will go out of business, people will be laid off, and unemployment will run out are you seeing the picture i am?????
Now here is the kicker, what is our Governor going to do about state tax…Knowing now what the Federal government has done…All the years of my blood sweat and tears working once again to be treated like a second class citizen well there are no words in any language to express what one really has to say…
The rich are probably laughing this week, as all of us small potato s are receiving less on are pay check s and they are paying less tax and receiving more on theirs…..Scam sham disgrace…..anger…just can not believe what is going on, some say it shall become worse..Am praying is all……;o) njg<
Now after reading all the posts above am hopeful an error and a mistake was made…Prayerfully any who how….;o) njg<
February 3rd, 2011 at 12:09 pm
I suppose all of you Dems out there had nothing to do with the increase in health insurance either, did you? How about having to pay a 25% increase or $2,000 more per year to fund Obamacare, which is totally unconstitutional? Wake up Dems, maybe the Brotherhood will take over the USA since Obama sympathizes with Egypt’s protestors so much, he i may be getting just what he deserves.
February 3rd, 2011 at 12:23 pm
My federal tax deduction is up $47.15 and medical is up $12.10 monthly. That is a $711 tax bill. Who said there would be no tax increase on the middle class?
February 3rd, 2011 at 1:52 pm
I just called TRS of IL. The reason given for the decrease is INCREASED TAXES. I,too, thought the Tax cuts had been extended. If this is true, WHY is the cut going into effect anyway? Couldn’t possibly be our Government led by the Great Obama, now could it?? He was just on the news and so concerned about his daughter’s dance???? Is this why we elected this goofball??? If we don’t vote him out, along with the rest of the D C Democrats, our country is in BIG trouble.
February 3rd, 2011 at 6:53 pm
I am also a retired federal employee, went out on a disability, I have a small part time job and cannot believe the federal witholding on both my retirement and my very small check I get from working part time, I am not an Obama supporter nor will I ever be.
February 4th, 2011 at 4:16 pm
For all of you that are blaming the OA, here it is in plain english. Bush got into the war way over his head and refused to back down or take blame for things that were not right. So Bush gives you a couple tax breaks. YAY! We’re all happy. Meanwhile the government cant opperate on this kind of funds cut. Global markets see it. Economy crashes. Obama Admin. steps in and takes those bennifits away so that they can dig us out of this hole we’re in and start bringin the US’s nose out of where it doesnt belong. Now that your getting your sucker taken away your all pissy….cry a little more.
February 4th, 2011 at 8:52 pm
Jaxon-you need to get your facts straight….
February 4th, 2011 at 11:59 pm
Democrates or republicans, it make no difference.
Those in washington are the smart ones and we little people are the stupid ones. Most all complaints have been about withholdings from your pay. I believe during FDR’s administration was when payroll deductions
were started. Prior to that, when taxes were due, you
paid them out of your pocket. Can you imagine what
that would would be like today when your due burden
could be 8 to 10 thousand dollars? A lot of people
would end in prison for failure to pay, or taxes would
never gotten out of hand as they are today. Us stupid people usually just accept what we get to take home.
And, sorry, to you union people out there, the same is
true. Our union got voted out because our company
refused to withold dues from the employee’s checks. When they had to ante up for dues and could actually see that they were not getting their money’s worth, the
union got nixed. And also, for 2011 your tax rate did not go up, but your tax burden will increase the $400
single or $800 joint that you were given the last two
years. So, I wouldn’t change my deductions. This is
at least true for earned income. Also, do not knock
the rich as us little people would not have jobs without them. They, too, should have to pay reasonable
taxes, but cannot be the sole supporters of the terrible spending in Washington
February 5th, 2011 at 7:39 am
I made 30,000 last year. $400 (Making Work Pay?) divided amongst 26 paychecks would come to $15 something per paycheck. Even if they took this back, they are now taking out approx. $22 more in FIT, not $15. My hourly wage hasn’t changed since Sept, so I’m not getting this.
February 5th, 2011 at 11:59 am
This February the taxes on my pension went up $53 more a month and my health insurance went up $12 more a month. I won’t be voting for democrats or republicans ever again.
February 5th, 2011 at 2:02 pm
This is total unadulterated crap. My take home pension has reduced $302.31 since 2006. Automatic FET increases should be unconstitutional.
February 5th, 2011 at 5:01 pm
Why is my federal tax withholding more and my social security tax withholding went down for my paycheck for February 2011.
February 5th, 2011 at 6:19 pm
when you are retired and living on a pension and social securiy,every penny counts..i voted for obama, but i am very upset..maybe that extra tax deduction of 25-30 dollars on the pension check doesnt matter to him or the cronies in congress, but for me its grocery money or paying my electric bill..i worked hard for that pension, and to see breaks given to those making considerably more is upsetting..please post that website again where you can check on what happened..thanks
February 5th, 2011 at 7:03 pm
Am so disgusted to find that my check is reduced, but also no notification from my fromer employer. How sneaking is that?
February 5th, 2011 at 9:49 pm
Totally caught off guard!! Why no news re retirees being hit with an increase in Federal taxes?? Husband and I net pensions were reduced by over $79+ for the month of February and apparently this will be the case each month in the future!! This translates to over $951 less spending income per year for us. There was no advanced notice that this was going to happen!! In fact, lots of hoopla was made regarding continuing the Bush tax cuts!! No mention about the Making Work Pay Tax Credit expiring!! We retirees no longer paying into Social Security do not benefit with the decrease in FICA tax reductions. Only current workers do. Apparently, the expired Making Work Pay tax credit in some way is why we are seeing a Federal income tax increase. This is not fair for the elderly and retirees on a FIXED income; especially, with food, heating, and gas prices increasing!! This appears to confirm the growing resentment towards retirees who played by the rules by doing without extras during our working years to plan for our retirements; i.e., work pensions and social security pensions to then be penalized by increasing our Federal taxes on our pensions while many others (the rich) Federal taxes are reduced. Where is AARP when you need them??
February 7th, 2011 at 2:00 pm
There’s a lot of griping here from retirees. It’s not just the retirees that are going through tough times.
You guys have not had cost of living adjustments increases the last two years because there has not been inflation. Well, our company has been really hit hard by the economy and for 2005, 2006, 2007 and 2008 we did not get any pay increases. Then at the end of 2008 we had to take a cut in pay because of things. I’m making less than I did in 2004. I see the company financials so I know they aren’t doing this out of greed.
I need to be grateful to have a job even though I am living on an income that was the same for several years and then went down.
It’s not a “fixed” income, it’s a GUARANTEED income that INCREASES each year unless there’s no inflation. It would be nice to have SS – if I lose my job, my income becomes zero. And many people have a lot of trouble finding a job when they lose theirs.
February 7th, 2011 at 3:15 pm
All this griping (including my own) could have been avoided simply by explaining that the tax break for “MAKING WORK PAY” is expiring. Why the Obama administration is being so secretive about all the good that has been accomplished, the end of this temporary benefit included, is beyond me.
Hey you “REPUBS” out there, quit your political garbage slinging, you benefited from this also.
February 7th, 2011 at 5:50 pm
cm. You don’t have social security because you have not contributed to social security for over 40 years like I have, you can collect unemployment for at least 99 weeks if you lose your job,if you are unhappy with the amount of pay you are receiving you can always look for another job, I am 67 years old I would have a hard time finding a job at this age. I think when your retire your thinking will change because you will see what living on a fixed income is really like. Ask your Mom and Pop if you don’t believe me, if they are deceased ask any older person what it is like living on a fixed income.
February 7th, 2011 at 6:03 pm
Norman L. Wiechnick, unemployment is at 9.0%, the deficet is 1.5 Trillion. How did I benefit from “Working Work Pay” when I am now paying $50.00 more in Federal Withholding Tax.
February 7th, 2011 at 6:14 pm
cm: Our company pensions are FIXED!!! There is NO provision for inflation on our company pensions EVER!! When we have to pay additional Federal taxes on our company pensions, we are left with less to live on!! Our Social Security income is much less than our FIXED company pensions AND SS has not been increased for the last two years. Even when SS has been SLIGHTLY increased for inflation, most of the increase was taken away to pay the every increasing MANDATORY monthly MEDICARE payments.
February 8th, 2011 at 3:47 pm
Both my husband and I are retired and each receive a pension and hubby received SS. Each of our pensions were reduced by over $30 and our health insurance went up over $30 a month. This came to a total decrease in income of $100 a month or $1200 a year. Hubby’s pension is fixed so he will never get a COLA and since I’m a federal retiree we have not gotten a raise in pension or SS in 2 years. The loss of $100 a month when everything else is going up amounts to quite a chunk of change. Where will this end????? Any COLA we get just goes to pay for the increases in health insurance. Our country is in big trouble and although I don’t know the answers to fix it, this doesn’t seem like the way. Everything we buy cannot continue to go up while our incomes continue to decrease. Who will help the senior citizens when they can’t pay their bills or put food on the table?????
February 8th, 2011 at 11:16 pm
Just received an e-mail from one of my senators regarding this increase in Federal Taxes. He said that because the Making Work Pay credit expired on Jan. 1, 2011 and was replaced by a 2% cut on FICA taxes, some people will see an increase on the Federal withholding taxes. People who are retired get the shaft and the only thing we can do is remember this when election day comes.