If I read you right Padre, you're saying they only changed the payroll tax tables and that we'll have to give this savings back to the government next 4/15? Not that is tough to swallow. Do you have a link that confirms this? I need to see that spelled out.
IRS Publication 15-T March 2009 New Wage and Withholding and Advance Earned Income Credit payment Tables. I don't know if it is online (irs.gov) but I have a hard copy on my desk. The withholding method tables changed. No more, no less, no magic payroll fairy dust.
What I meant by a surprise at tax time is for folks who use their withholding like a savings account. You know the folks who talk about their huge refunds? If less is withheld than it will mean there will be less to return. It would be no different than if you saved $25 per week and now you decide to save only $12. That's a big difference over a year's time.
The $13.00 amount that has been going around is an
average. If you are an average wage earner who claims the average withholding allowance you will see -on average - $13 more in your paycheck; more accurately $13 less withholdings. Seeing average is somewhere between two extremes some folks will have a small decrease in withholdings and others will have a significant change.
Giving the savings back isn't an accurate portrayal of what is happening with this revision. Payroll taxes are deducted as an advance payment toward a tax liability. When you file your income tax return you are reconciling what you have already paid with what your actual liability is.
Payroll withholdings cannot reasonably take into account the complexity of allowed deductions and a miriad of other things the 80,000+ page tax code calls for. Periodic withholding, in its simplest form, is the government saying, based on your income you should expect to have a tax liability for $xxx.xx. At the end of the year we will give you an opportunity to tell us the things that add or subtract from your financial picture and we'll reconcile. Say you had $2500 withheld over the course of a year. When you file your return you get to account for mortgage interest, medical payments, etc. When the calculations are complete it says your tax liability is $2000. You will be refunded $500. If your return calculates your liability at $3000, you get to send them a check for the difference between what was withheld over the year and what your total liability is.
I just think some folks who wait to get their refunds so they can head off to Best Buy are going to be disappointed at a smaller windfall than they are accustom to.
