Ahh, the first paycheck of 1991. Better start paying those Christmas bills, you think ruefully, giving your pay stub the usual quick once-over.
But wait. What are these new figures in the withholding column? How can the government deduct money for Medicare when you're not even within hailing distance of 65? And what the heck is OASDI?
Ahh, dear taxpayer, it's the magic of the new tax laws at work.
If the paycheck you received this week included new and confusing amounts of withholding that were not there last week, don't panic.
Chances are good that you won't actually find any more of your pay withheld in 1991 than in 1990 -- unless you were near the top of the income tax brackets already.
The change in the deduction for Social Security taxes, for example, is in many cases merely a change in terminology rather than a change in dollar amount, accountants say.
Medicare and Social Security deductions "were all in one number in prior years, but under the new 1990 Tax Act changes they've been broken into two segments, each with a different wage base," said A. A. Windesheim, tax director for Katz, Abosch, Windesheim, Gershman & Freedman, P. A., a Towson accounting firm.
What that means is this: Until the end of 1990, you paid 7.65 percent of your annual income up to $51,300 in so-called FICA taxes. The government then split this money up, giving part to Medicare and part to the Old Age Survivors Disability Insurance fund, or OASDI.
This year, however, your employer withholds two separate payments from your check: one for 6.2 percent of your income, to OASDI, up to an annual income limit of $53,400, and another for 1.45 percent of your income, to Medicare, up to an annual income limit of $125,000.
"What will happen is that those people who don't make more than $53,400 will notice no difference. Their deductions will just be in two pieces instead of one," said Ronald A. J. Wilson, partner in charge of the tax department for the Baltimore office of the national accounting firm KPMG Peat Marwick.
Those making more than $53,400 could be paying as much as $1,038 in additional Medicare deductions, Mr. Wilson said.
The reason for the change is simple, he added. "It was thought that people who make more than $53,400 can afford more in Social Security taxes."
A change in the applicable tax brackets -- from 15, 28 and 33 percent, to 15, 28 and 31 percent -- also could make a difference in the withholding for high-income taxpayers, accountants said.
The applicable tax brackets have changed in two ways. First, under provisions of the 1986 Tax Act, they have been enlarged to account for inflation.
Last year, for example, married taxpayers filing jointly fell into the highest tax bracket -- 33 percent -- if they made a total of $78,400. This year, they have to make a total of $82,050 to be in the highest bracket.
The switch in tax-bracket percentages is less beneficial for highly paid individuals, Mr. Wilson said.
Before, the 33 percent bracket ended when the income of married taxpayers filing jointly reached $162,770 a year. Beyond that amount, the taxpayers effectively paid only a 28 percent rate. Now the 31 percent top bracket "runs on forever," Mr. Windesheim said, meaning that high-income workers may pay more taxes in 1991.