In the great American tradition of waiting until the eleventh hour (really the tenth, but who’s counting), both parties have agreed to avert the plummet over the fiscal cliff. Unfortunately, what wasn’t included was the extension of the Temporary Middle Class Tax Relief and Job Creation Act of 2012.
Per the Washington Post
Regardless of the emerging agreement, many Americans are all but certain to face a broad hike in taxes starting Tuesday because of the expiration of the payroll tax cut, which was enacted in 2011 as a temporary measure to boost economic growth. The increased payroll taxes, combined with hikes affecting the very wealthy, would effectively mark the end of a prolonged period of declining taxation that has become a defining characteristic of the American economy.
Although most tax increases will land upon the upper classes, the increase in the payroll tax is significant to many within the middle and lower classes.
With the end of the payroll tax holiday, a worker earning $50,000, for instance, will pay $1,000 more in taxes this year; a worker earning less than $20,000 a year will pay about $100 more. Someone in the upper fifth of households, making $150,000 a year, will pay about $2,200 more.
Or to put in another way:
The payroll tax withholding, which is used to fund Social Security, is due to rise from a reduced level of 4.2 percent–which was set temporarily in 2009–to the normal level of 6.2 percent. The payroll tax will apply only to the first $113,700 of earnings in 2013. So you can simply calculate what two percent of your income will be in 2013, to estimate the additional amount you’ll pay. For the typical earner, a two-point increase will amount to about $700 in added tax payments per year.
I’m sure there’s much more to it, but the fact is that we’ll all be seeing less in our paychecks. But then again, at least its going to Social Security, something that all of us in the U.S. will eventually need.
Yeah, I know, but I need to find at least one silver lining in all of this.
Happy New Year to you all!
[image via San Francisco Examiner]