Wednesday, January 16, 2013

Payroll Tax "Increase"

Image Source: Dave Ramsey

I consider myself to be pretty financially savvy and in tune with most of what's going on out there in the media/press.  However, I was caught by surprise when I heard that all of us would in-effect be receiving a 2% pay decrease this year as a result of the fiscal cliff deal. 

I think that was all done in a very sneaky way.  The headlines were that all tax breaks would be extended for the "middle class" and only "the rich", which they currently define as individuals making over $400,000 annually, would see their taxes increase.

Due to the constant barrage of the "fiscal cliff" talks and deadline right around the holidays, I think many like myself just figured that a deal would get done, none of us will be effected this coming year and life will go on.  So we started to tune things out. 

I'm not quite sure how the end result did not match the headlines and how there wasn't more of an uproar about it, but it is what it is unfortunately. 

Here is a brief synopsis from Dave Ramsey's post yesterday:

"In 2011, Congress temporarily reduced the Social Security payroll tax from 6.2% to 4.2%, which meant extra money in the pockets of the American people and, ultimately, the marketplace. It was designed to help boost the economy.

That tax cut expired on December 31, 2012. The change back to a 6.2% Social Security payroll tax rate took place immediately. If your most recent paycheck seemed lacking, that’s why."

I'm not saying the tax shouldn't have gone back up, it was after all a temporary measure that was meant to be one year and it was extended out to two years.  However, the way this was portrayed in the media and by politicians left a bit to be desired.  But I guess that's my bad for not paying closer attention. 

Just wanted to make you aware of that in case you were wondering why your paycheck went down.  For the average American household earning $50,000 per year, the expired Social Security tax cut is essentially a $1000 pay cut. That works out to roughly $40 every two weeks.

Check out the post from Dave Ramsey for a full breakdown and some suggestions on how to overcome the shortfall.  

Were you aware of the 2% decrease in pay as a result of reverting the tax back to 2011 levels?  Do you have any plans to cut back given the 2% decrease in income?   Curious to hear your take. 


Design by Free WordPress Themes | Bloggerized by Lasantha - Premium Blogger Themes