Wednesday, January 9, 2013


I warned you about this.

Despite the federal tax relief for taxpayers passed at the last minute, or actually after the last minute, payroll tax increases may spoil the party.  As we have been warning you, the payroll tax reduction of 2% on employees that has been in place for 2011 and 2012 was allowed to expire on December 31st.   

Lawmakers did not renew the two-percentage-point cut in the employees’ share of the Social Security tax.  They did not like the idea that government funding was required to make up the decrease in tax revenue for the Social Security trust fund. As a result, they decided to let this break lapse.  Thus, employees will see smaller paychecks as the rate returns to normal.   

So the result of all of this… Since the cliff bill was passed the federal tax withholding stayed the same as in 2012 instead of going up, but since the 2% withholding of Social Security went up people will see 2% less in their 2013 paychecks.