Lacie Lowry, News On 6
WASHINGTON -- The new year means American workers get to take home more of their pay.
One of the items in that giant tax package the President signed earlier this month is a cut in payroll taxes. The changes start in January but only last one year.
That bill signed by President Obama included a 2-percent payroll tax cut. Now, the Internal Revenue Service is explaining how that cut affects you.
With a signature, President Obama ensured that paychecks would be a little bigger for American workers.
"This package includes a payroll tax cut that means nearly every American family will get an average tax cut next year of about a thousand dollars delivered in their paychecks," the president said.
As we get closer to 2011, the IRS is now explaining how the payroll tax cut will go into effect.
"The IRS adjusted withholding tables in keeping with the law that Congress wrote and it was signed into law December 16th," said IRS Spokesperson David Stell.
The payroll tax cut reduces employees Social Security tax withholding rate from 6.2 percent to 4.2 percent.
"A worker earning about $50,000 during the year 2011 will see about $1000 increase over the year in take-home pay as a result of this and that's a pretty significant boost in take-home pay," Stell said.
The decrease is only good for one year.
U.S. Senator Tom Coburn issued the following statement:
I believe the payroll tax holiday will be helpful, but any benefits will be undone if Congress continues to borrow and spend beyond our means.
In the meantime, employers and payroll companies will handle the changes.
"When the law was signed, the IRS issued some interim guidance to employers to get them ready and get them started on making the changes necessary in the payroll withholding system," Stell said.
Workers typically won't need to take any action to enjoy the benefit.
The IRS is asking employers to adjust their payroll systems as soon as possible, but no later than January 31st.