The new tax deal to avert the Fiscal Cliff may affect taxpayers who are struggling the most. Social Security taxes increase as part of the agreement to avert the Fiscal Cliff to pre-2011 withholding rates of 6.2% of gross wages up to $113.700. The rate had previously been lowered starting in 2011 from 6.2% down to 4.2% as part of the Tax Relief Act of 2010.
A family that has become accustomed to the additional money in their paycheck and structured their budget around the lower rate will have to readjust to the higher withholding rate. Is 2% a big deal? If both you and your spouse make combined wages of $100,000 the additional withholding equals $ 2,000 per year or $ 167 per month. A family with combined income of $50,000 a year will see $1,000 less in net pay for 2013, or about $84 per month.
If you are a business owner that prepares your own payroll, make certain to adjust the amount of Social Security withholding from each employees payroll to avoid costly penalties. Also, don’t forget that this affects self employment taxes as well. Single member LLC owners, and partners will see an additional 2% due on their individual tax returns for 2013. Contact your tax accountant to make sure your quarterly estimated tax payments take this into account.
If you have any questions, please don’t hesitate to contact us.