2012 Changes That May Affect Take-Home Pay

Written by: David Kravetz, Payroll Manager

Co-Author: Kristy Kwan, Benefit Administrator

As we close in on year end, we at MMC are looking forward to prepare for the changes in payroll that will occur in 2012. Although the numbers may seem small, they do impact your take home amounts overall.

In 2011, we saw the California State Disability rate go to 1.2%. In 2012, it will be reduced to 1.0%, which will result in a slight increase in employee’s paychecks. However, this will be offset by the return of the social security rate to the original 6.2%. If you recall, in 2011, the social security rate for employees went down to 4.2%. Unless legislation is passed within the month of December, the rate will return to 6.2%.

The maximum allowable 401k contribution has increased from $16,500.00 in 2011 to $17,000.00 for 2012. Those who participate in Health Savings Accounts (HSAs) may also defer an additional $50.00 per individual or $100.00 per family in 2012. Please see the chart below for details.

One change that began this year (and will likely continue throughout 2012) was an increase in “lock-in letters.” These IRS letters state that employees must claim a certain withholding amount. These letters are generated in response to an employee failing to pay enough taxes throughout the year (based on their income bracket). A majority of these “lock-in letters” require the employee to be classified as single, with zero withholdings. This drastically changes an employee’s take home pay, particularly if this employee has been claiming a high number of withholdings throughout the year (usually with the intention of paying taxes at a later date, instead of throughout the year). The lock-in letters are required to be in place for 5 years. To avoid these letters, it is crucial that employees complete their W4s correctly, or ask their accountant for assistance.

As always, the MMC Payroll Department is available to answer questions about these changes or any concerns that may arise: (800) 899-6624. From the MMC Payroll Team and the rest of our MMC Family, we wish you and yours a very happy holiday season.