Photo by U.S. Embassy Jakarta, Indonesia at Flickr.com
Now that Congress has finally passed the tax legislation, I have to quit complaining about their not doing it. Although I’m not completely happy with the bill (who is on either side?) at least we’ve got something to work with, and that’s better than nothing.
So what does it mean for you and me? The first thing that’s going to happen is the 2 percent increase in the payroll tax. You should expect to see that with your next paycheck. Here’s how it will work:
Let’s say you make $400 a week. The quick and dirty answer is that your take home pay will be 2% less than what it used to be. That would be $8. It won’t kill you, but over the course of a year it’s $416.
Now if you make $2000 a week, you’re losing $40 a week or $2,080 over the year.
So, how’ve you been doing? Are you completely strapped for cash or have you been making ends meet okay? How are you going to deal with that 2%? Thinking it through is going to be your best help.
Now for people with incomes over $200,000—you can expect to see an increase in your Medicare withholding—but don’t expect to see that until you reach that $200,000 threshold. You know how later in the year your social security tax goes down because you’ve crossed the line? I expect your Medicare increase will be handled the same way. You’ll be dealing with the same 2% payroll tax increase that everybody else is—but you won’t see the Medicare tax hit you until you’ve actually hit the $200,000 mark.
If your income is over $400,000 a year, then you will definitely see a difference in your withholding right away. Remember, the tax rate goes to 39.6% for single persons making over $400,000 a year and married persons making over $450,000 a year. That’s a 3.9% increase. But remember, that’s a 3.9% increase on amounts over the $400,000 mark only.
Although you should see a difference right away, remember that your employer has until February 15th to make the adjustment so keep an eye on your paycheck to make sure it’s correct.
There were lots of tax issues that Congress dealt with all at the last minute. The best summary I’ve seen of them is from a place called “The Tax Book”. That’s a reference guide that I buy every year to use when working on tax returns. They posted on their website a good summary—in plain English—of what Congress passed. Here’s a link to their summary: http://www.thetaxbook.com/updates/TheTaxBook/Updates/2013-01-02_Fiscal_Cliff_News.pdf
So how are you going to deal with your 2% payroll tax increase? Is it hurting? Will you manage? What will you do that’s different from what you did last year? Leave a comment. We would love to hear from you.