No Payroll Tax Credit Extension into 2013. See How Much Your Paycheck Will Drop With Higher Taxes

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[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.

2013 Payroll Tax Credit Expiry Impacts

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 RSSEmailFacebook or Twitter to get the latest articles.

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13 Comments on "No Payroll Tax Credit Extension into 2013. See How Much Your Paycheck Will Drop With Higher Taxes"

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[…] Americans’ payroll taxes, effective in 2011 and 2012, was not extended in 2013. You can see this article for the up to $2,200 impact on your 2013 paycheck with the expiry of this credit. In fact the […]

Jenny
Monday 11:18 am

I make $120,000 a year and I was expecting a 2% cut to my paycheck this year but when I just checked it, it was more like a 6% drop why???

Andy
Monday 11:22 am
Jenny – There are 2 reasons why your pay cut in 2013 was larger than expected. The first, and most likely one, is that you are probably comparing your last paycheck in 2012 to your newest one in 2013. Because you make more than the 2012 SSI wage base limit (~ 112,000) your income above that (8K) is NOT subject to SSI payroll taxes. So your last few paychecks were higher than earlier in the year. My suggestion is to compare a 2012 pay check from mid-year to your Jan 2013 one and you should see a 2% drop. Contact your payroll department if this is not the case. The second possibility is that your company has not updated their systems with the fiscal cliff legislation changes so they have got the Clinton-era tax rates (because the bush-era ones expired on Dec 31st) in place. This should be fixed and… Read more »

[…] all the tax changes resulting from the fiscal cliff legislation and especially because of the payroll tax credit expiry, the Tax Policy Center estimated around 77% of American households would see a tax increase […]

Mary
Tuesday 5:07 pm

So my paycheck will be less in 2013. Great! Just what i need with the credit card bills rolling in

[…] rates will return to the higher pre-Bush tax cut era levels (see potential 2013 rates), the FICA payroll tax credit holiday disappears, federal long-term unemployment benefits go away and people who lose their jobs […]

[…] – There’s no mention of extending the Payroll Tax Credit holiday, which reduced workers contributions from 6.2% to 4.2%, and which is due to expire in 2013. [See this article for the potential impact on your household] […]

[…] ** Get an update on the 2013 Payroll Tax Credit extension […]

[…] rates will return to the higher pre-Bush tax cut era levels (see potential 2013 rates), the FICA payroll tax credit holiday disappears, federal long-term unemployment benefits go away and people who lose their jobs […]

[…] and 2012, is also likely to expire on December 31st. [See how this will hit your paycheck via this payroll tax credit table]. The payroll tax break or credit dropped an employees payroll withholding rate for social […]

Saturday 4:32 pm
I was reading the NY times on a related topic and some good quotes (taking both sides of the argument for and against the credit) that sum up the impact of this credit are: “Instead of returning the social security payroll tax on wage earners to 6.2%, why not raise it from the current 4.2% to say 4.5%, and eliminate the tax exemption on wages above $110,100, so those higher earnings would also be taxed at 4.5%, instead of zero? A bit of “shared sacrifice.” Old age pensions, like public education, unemployment insurance, and health care, benefit American society as a whole, not just the recipients, and the tax structure should reflect that. Of course, taxing earnings above $110,100 would increase the social security taxes of every member of Congress, buy hey, what about economic patriotism? Hello? Hello? Congress?” “This was a misguided tax cut 2 years ago and it… Read more »
Bud
Saturday 11:53 am

JPMorgan Chase recently published a study estimating a cut to GDP of 0.6% next year from canceling the payroll tax cut, which will suck $125 billion out of the economy. Just what we need! Extend the tax cut congress!

Steve McManus
Saturday 6:50 am

Please notify me of any updates on extension of 2011 tax credit extension

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