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Making Work Pay Clawback

carissa's picture

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

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rapier's picture
Submitted by rapier on

So that's why they put the FICA cut in. To mask this. It's so unbelievable that politicians nor the press focus on rubber meets the road reality. I would be willing to bet that the only congress critters to know this were some members of the relevant committees, and their staffers. Yet nobody said boo.

sj's picture
Submitted by sj on

But it was a huge step toward weakening SS by having that 2% now come out of the general fund. Now, at last, it is part of the budget. And now, at last, it's vulnerable.

Eureka Springs's picture
Submitted by Eureka Springs on

by chipping away at SS was all one needed to know about their intentions (if you didn't already). Inflation has and will further wipe out your earnings power far beyond this... which they knew due to already spiking commodity prices yet to hit gas stations, utility bills and grocery stores.

Criminals are still in charge of both parties! As long as we let them treat us like parasites.. we will never be the proper hosts we are supposed to be.

Bastille day in America cannot come soon enough!

Submitted by Hugh on

Actually we knew going in ditching the Making Work Pay program was going to raise taxes on the lower end. It was just something that wasn't talked up much by media and the politicians. It was an inconvenient truth so they just kept repeating that the FICA was being cut and everyone should be happy. There was no attempt to fix this. Obama and the Democrats scored their media points and moved on.

Submitted by gmanedit on

Although the $120 billion payroll tax reduction offers nearly twice the tax savings of the credit it replaces, it will nonetheless lead to higher tax bills for individuals with incomes below $20,000 and families that make less than $40,000. That is because their payroll tax savings are less than the $400 or $800 they will lose from the Making Work Pay credit.

Who reported that the taxable-income floor would also be lowered? Was this in the bill?

carissa's picture
Submitted by carissa on

It was a shock when I examined my paycheck. I went to our Payroll people and asked them what was up. They provided me with the 2011 Pub 15 tables and I had to go scour the web to find the 2010 tables as they are no longer available at the IRS web site.

I realized the night Obama announced the "deal" that we were getting scammed on the MWP swap for the SS tax holiday. I didn't know then that they were planning on taking back the credits earned in '09 and '10, but that's exactly what this lowering of the floor does.

carissa's picture
Submitted by carissa on

The floor for the top two brackets in 2011 are higher than they were in 2010.

33% in 2010 started at $6,688, in 2011 the floor is $6,788
35% in 2010 started at $14,450, in 2011 the floor is $14,663

My point still stands.