You may have just received your first paycheck of the New Year and wondered why the net amount is less than your last paycheck of 2012. There is an easy explanation.
Social Security Tax Increase
In 2011, Congress passed a Social Security payroll tax holiday of two percent, and extended it on multiple occasions throughout the end of 2012. This tax holiday was intended to help stimulate the economy by giving taxpayers more disposable income in their regular paychecks. If you are afraid that we were just robbing Social Security for the short term, you may rest easy knowing that there was a provision that allowed the lost portions to be transferred from the General Fund to prevent any loss to the Social Security Trust Fund.
The Fiscal Cliff
The “fiscal cliff” received much attention at the end of 2012. While Congress eventually agreed upon legislation extending many of the tax breaks that were set to expire on December 31, 2012, they did not, however, include a provision to continue the Social Security tax holiday. Therefore, effective January 1, 2013, the Social Security tax increases from 4.2 percent to 6.2 percent.
Evaluate Your Budget
The New Year is a perfect time to evaluate your budget and make any necessary adjustments. Because of the extra two percent Social Security tax increase, you’ll receive less money from your paycheck. You may need to look at cutting your expenses to offset this change.
The “fix” that Congress passed to sidestep the fiscal cliff is only a temporary one. If you aren’t pleased with the outcome, please contact your legislators and inform them how you feel they should vote.