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Expired Payroll Tax Cut results in smaller paychecks

The people of America are facing smaller paychecks so far this year, thanks to the Fiscal Cliff Controversy that occurred within our country’s government at the end of 2012.

As of December 31, 2012, the Payroll Tax Cut expired. This cut reduced payroll taxes by 2%. The 2012 Federal Insurance Contributions Act (FICA) tax rate was 4.2% for employees and 6.2% for employers under the Middle Class Tax Relief and Job Creation Act of 2012. However, bills currently being considered in Congress may change this, but until Congress acts to further extend the 4.2 percent rate, the employee rate will withhold based on 6.2% with paychecks beginning in January 2013. The 2013 FICA tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2013 up to the social security wage base. The maximum social security tax employees and employers will each pay in 2013 is $7,049.40. This will be an increase of $2,425.20 for employees and $223.20 for employers. The employer rate remains 6.2 percent. The Medicare rate, also matched by the employer, is unchanged at 1.45 percent and applies to all wages.

The bottom line is that most people getting a paycheck within our country will be getting less money this year, thanks to the tax cut expiration. The tax cut was implemented in 2011 to help boost a sagging national economy. But, with the expirations’ cut comes the re-implementation of a larger tax rate, which will take a bite out of what most employees that have taxes taken out of their wages have brought home over the past two years.

Although our government has just returned to a point that was the standard rate in 2010 and years before that, many employees have gotten used to bringing a little bit more each week. And that little bit of extra money, whether it was used for groceries or baby formula will be missed.