Making Work Pay Clawback
I found out why this happened.
Got that? My federal taxable wages went down. But my federal income tax went up $20.25 at the same time my FICA payroll tax dropped $35.70. How is that possible?
Some "changes" were made to income subject to withholding within each tax bracket.
Click on images for larger version if you are having difficulty reading them.
Here is the Method of Withholding table for 2010 from Publication 15
Here is the same table for 2011
Can you see the change? Total wages subject to tax increased in 2011 in the lowest tax bracket.
Whereas in 2010 a Married Person paid Biweekly (that would be me) didn't start paying any income tax on her taxable income until the amount hit $529, in 2011, that amount dropped so that income greater than $304 is now subject to tax ($225 more than in 2010. For a single person, those amounts went from $233 in 2010 to $81 in 2011, an additional $152 subject to taxes for the lowest bracket). The upper end of the bracket varied by only a few dollars.
In 2010, the max tax payable for a Married Person paid biweekly in the 10% bracket was $41.30. In 2011, that amount jumps to $65.40; a jump of $24.10! For a single person paid biweekly, the tax paid goes from $16.80 to $32.70 in 2011, a difference of $15.90.
Funny thing too, except I'm not laughing: $24.10 multiplied by 26 pay periods - and you're just going to be amazed at the coincidence of it all - equals $526. For a single person, $15.90 multiplied by 26 $413.40.
The Making Work Pay credit in 2010 and 2009 was $400 for a single person. For married couples the credit was $800. Do you see what they've done here? They didn't just eliminate the MWP credit. They're clawing back the credit they gave for 2009 and 2010, with the burden for paying that clawback falling most heavily on income in the lowest tax bracket.
As for the wealthiest among us, no equivalent sacrifice is demanded, for as you can see the starting dollar amount for income subject to the 35% tax bracket was raised, rather than lowered, as was done in every other bracket.
Original version posted at Blue Lyon