Tax change could mean more money for you

January 4, 2011 4:33:26 PM PST
If your New Year's resolution is to make more money -- great news, you've probably already done it! That's because your payroll taxes are going down. How much will this mean to your bottom line? That's what we all want to know -- how much money are we talking about? A lot of this depends on how much you make right now.

Rosa Escobar will see more money in her paycheck in 2011 and she's happy to hear about it.

"I hope so, I need it," she said. "That's great. Maybe it will help the economy."

Escobar and all workers will see the extra cash thanks to a new law that cuts the amount of Social Security withholding taxes by two percent.

"Buy a little more groceries, save up a little bit more," Escobar said. "It is harder now to save money. I save a little bit, but I can add a little bit more to my savings."

The amount you see each week depends on how much you currently earn. For example, a bike messenger making $20,000 may not see any increase at all because the tax cut replaces the make work pay credit worth $400.

Houston CPA Bob Martin explained, "From my understanding, some of the people making under $20,000 will actually see less under this program than they did under the previous program."

Martin says top earners will see the impact of the payroll tax cut. Someone making $100,000 a year will see about $2,000 extra in 2011 or about $166 a month.

Taxpayer Sanjeev Deshpande said, "Of course, everybody can use extra money, but hopefully it will translate into getting more jobs people will be hiring, companies will be hiring."

Another change -- if you are used to getting your income tax forms sent to you by mail, this year taxpayers will have to go get them or turn to the internet.

"They will be able to print out the forms from the internet," Martin said. "If you don't have internet access, hopefully you'll have a friend that can print out the forms and instructions for you."

Another thing that could derail your extra cash, increased health insurance costs. If you have a plan through work it is probably going to cost you more, so don't spend extra 2 percent just yet.