If you think your paycheck is smaller these days, you’re correct.
Even though a deal was reached to keep the United States from going over the “Fiscal Cliff,” that doesn’t mean there’s not some trickle down to John and Mary Doe.
A payroll tax cut that was implemented two years ago as a way to spur consumer spending expired — and it wasn’t part of the fiscal cliff negotiations. For many, that meant an almost immediate reduction in take-home pay.
For most Americans, the increase will amount to between $30 and $50 every two weeks — or between $780 and $1,000 per year. For a working couple, that means up to $2,000 take home pay annually.
The reason is a nearly 50 percent increase in the social security payroll tax, which reverted to its rate of 6.2 percent from last year’s 4.2 percent.
FOX Business Network anchor Gerri Willis said no one is immune from the increase.
“This tax increase hits anybody who gets a paycheck. A middle class family making $50,000 would see a $1,000 increase in their tax obligation.”
And for those who make the most money, the impact will be greater.
Willis said one big change that hasn’t been talked about much — but will impact everyone earning $250,000 and more for single filers and $300,000 and more for couples — is a phase-out of personal exemptions and itemized deductions.”
For those people, the value of any mortgage deduction, charitable deduction or personal exemption you take on your taxes will drop with your income.
Wills said that means the tax bills owed by those people will increase, even if their income remains the same.
And a political marketing professor at West Virginia University says paying for Christmas may be harder for some families.
Lee Boggs said, “Consider this: For two years, taxpayers have gotten used to a certain amount of take-home pay and planned for their children’s Christmases accordingly. How many people spent and charged during the holidays based on their 2012 take home pay, not considering that their take home pay would be $40-$80 a month less in January 2013?”
Boggs said receiving more take home pay might have led some people to go out and sign up for a multi-year contract for a cell phone, a gym membership, a car loan or higher mortgage payments.
“Now they’re bringing home less but they are still responsible for those contracts. Couple that with holiday debt and some middle class people could be facing serious financial challenges right now.”
(Portions of this article were taken from an IRS press release.)