Tuesday, May 15, 2012


This past tax season the following sentence appeared in almost all of my comment memos that accompanied finished returns to identify or explain items of interest or concern on the tax returns –
For 2011 and 2012 BO’s Making Work Pay Credit was replaced by a 2% reduction in employee Social Security tax withholding.”
In most cases I went on to say that the client did “more better” under the 2% reduction – ending up with more money “in pocket”.  Quite a few clients ended up with two or three times as much “in pocket” under the 2% reduction. 
In several cases clients who did not get any MWP credit in 2009 and 2010 due to their level of income ended up with $4,000+ “in pocket” via increased take home pay in 2011. 
I do believe that a large number of my clients were surprised at the amount of tax savings the 2% reduction provided.
I also pointed out that in many cases their 2011 tax refund was less than that for 2010 because the savings did not show up on the tax return.
This seems to be borne out in the statistics discussed by Kay Bell, the yellow rose of taxes, in her post “Tax Refunds Smaller in 2012”.

The average tax refund amount through the end of April was $2,716.
That's $106 less than the average refund amount issued at around the same time last year, according to the latest Internal Refund Service 2012 tax filing season data.”
So, while the average refund was slightly smaller, I expect the average actual tax reduction was greater.
The 2% reduction in employee Social Security tax withholding came as a surprise to me.  BO had said he did not want any tax reduction for those with “high income” – considered to be $250,000 or more regardless of geographic location.  Yet the reduction put $4,272.00 in the pockets of couples where each member earned at least the maximum Social Security wages (combined $213,600).  And those at the lower end of the wage spectrum actually received less with the 2% reduction than the Making Work Pay Credit had provided.
To be honest, I was happy that my clients put more money in their pockets, and was pleased that my workload was somewhat reduced by not having to prepare a Schedule M.  

The 2% reduction is an “evolution” of Dubya’s original tax rebate checks – which produced more agita than they were actually worth, especially to the IRS – as was the Making Work Pay Credit.  This new method is an improvement on the rebate checks to be sure, but still not a solution.

Rather than fool around with politically beneficial gimmicks the idiots in Congress should just rewrite the Tax Code!

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