As the New Year approached, most Americans braced themselves for a tax increase as the fiscal cliffnegotiations progressed in Washington but were relieved when an agreement was reached. Income taxes were only raised on those Americans earning more than $400,000 (or $450,000 for couples filing jointly), which affects roughly the top 1% of income earners. So why will everyone’s paychecks go down in January? The answer is timing.
Two years ago when the economy was in crisis, Congress lowered the amount we pay for social security taxes from 6.2% to 4.2% in an effort to stimulate the economy. This “tax holiday” was originally scheduled to expire last year but was extended until December 31, 2012. This tax funds social security for all Americans, so a long term decrease for an increased need was not sustainable. The result of the fiscal cliff negotiations was that the social security rate returned to 6.2% effective January 1.
What does that mean in dollars? Since this additional 2% has been restored on all wages up to $113,700 in 2013, the additional tax for single filers will be up to $2,274 or $4,548 for married filers.
I hope this clears things up.