2% Payroll Tax | robergtaxsolutions.com

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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 15^th 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.

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I was watching my Sunday morning news program and some talking head said the term “fiscal cliff” 10 times before I quit counting and started on the crossword puzzle instead. I really wasn’t going to write about it—I figure that plenty of more important people are talking about it and certainly plenty of better writers are explaining it.

But my son talked me into it. Not with, “Oh Mom, it will make so much more sense if you explain it,” of course not. He said, “Yeah, Fiscal Cliff sounds like a Highlights series. You know, Fiscal Cliff saves all his receipts for his taxes and, Irresponsible Andy writes bad checks.”

While I realize that everybody knows that Fiscal Cliff is not a real cartoon character (well almost everybody anyway) I guess I should spell it out just to make sure you know what’s going on.

The fiscal cliff is like a one two punch to the American economy that basically involves tax hikes and government spending cuts that are going to happen if Congress and the President don’t get off their doofusses and come up with a better plan.

First the taxes, this is what will happen starting January 1:

Bush tax cuts expire and taxes will go up for most Americans
The temporary 2% payroll tax cut expires
The AMT patch is not extended

These tax issues are expected to make everybody’s taxes go up from between $2,000 to $3,000 a year.

Next, we have the immediate reduction in government spending that hits on January. Some of the budget cuts include, but are not limited to:

a $55 billion reduction to the Pentagon’s budget
a reduction of payments to physicians participating in Medicare
substantial cuts to FEMA
and substantial cuts to the Department of Education

The combination of tax increases and government spending cuts are expected to take $800 billion out of the U.S. economy. That could be devastating to us.

So—what’s next? You tell me and we’ll both know. It’s not like Congress and the President didn’t know it was coming. These issues have been in the works for quite some time. The idea of punting until after the election seems to be standard operating procedure for our elected officials. Now that the election is over, they don’t have a lot of time to fix this mess.

I don’t know what the right solution is, but I do know that this is what’s going to be the headlines for the next few weeks.

Tag: 2% Payroll Tax

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