[Updated following latest fiscal cliff negotiations] The 2 percent cut in Americans’ payroll taxes, effective in 2011 and 2012, expired on December 31st 2012. This stimulus driven tax credit did not receive much support for an extension from either party or the President, and was a casualty of the fiscal cliff deal that did extend federal income tax cuts.
The payroll tax credit dropped an employees payroll withholding rate for social security taxes to 4.2 percent from 6.2 percent. This resulted in a potential after tax saving of up to $2000, and affected about 160 million Americans who had an earned income source. The expiry of this tax break means the payroll withholding tax rate is going back up to 6.2 percent. The table below shows a broad sampling of how an employees take home pay will be affected based on their annual pre-tax income. For example, someone earning $50,000 will see their monthly after tax pay drop by $83.33 in 2013.
If there are any changes to the status of this credit or other economic items related to payroll taxes I will provide an update and encourage you to subscribe via RSS, Email, Facebook or Twitter to get the latest articles.