As much as we like to focus on positive topics and strategies to improve your personal financial security and wealth, we must concede that it is equally important for this blog medium to try and keep you informed and help reduce surprises in your tax and financial lives. That is the nature of this message. The first 2013 paycheck you receive in the next few days (or longer depending on your pay frequency) will bring a change that was set in place early last year but has been long since forgotten by most wage earners.
It’s a sad truth.
With the end of 2012 also comes the end of a temporary 2% reduction in the employee share of social security tax that is withheld from your payroll. In an effort to promote consumer spending and thus stimulate the economy, the U.S. Government put in place a temporary reduction of the social security tax withheld from employees during 2012. If all other information remains the same, your first payroll of 2013 will see that rate returning to its previous level. So even though your net pay may go down due to an increased social security tax withholding, this does not represent a tax increase unless your taxable wages are above the $110,100 wage limit of 2012. It is simply restoring that tax withholding back to the pre-2012 rate.
The Social Security portion of the Social Security/Medicare tax returns to 6.2% of your gross wages as of January 2013. This will be on the first $113,700 of taxable wages (up from $110,100 in 2012). This means that if your annual wages are $100,000, you will see $2,000 less in your net pay than in 2012. Employees, as well as the self-employed with taxable earnings over $113,700 will see $2,425 less in your net take home pay. This means that a family with both parents working and earning less than a combined $250,000 could see a decrease in available spending money of $4,850 from this change alone.
This rate restoration is not part of the so called Fiscal Cliff per say and will not be continued or postponed by any of the provisions of the American Taxpayer Relief Act as signed by Congress on January 1, 2013. Consequently, this reduction in spending money was not contemplated in the tax increase totals that the media has recently been publishing as the average tax increase per family if the Fiscal Cliff were not avoided. We will be watching this item as all the details of the American Taxpayer Relief Act unfold and if this should change, we will post an update to this message.http://www.ssa.gov/policy/docs/quickfacts/prog_highlights/RatesLimits2013.html http://www.ssa.gov/policy/docs/quickfacts/prog_highlights/RatesLimits2012.html