…But the general mass (hysteria) media is full of misinformation.
Now that falling off the “Fiscal Cliff” has been delayed and Washington has come up with new tax rates for 2013 and beyond, we all need to take a deep breath, and check the facts regarding those new tax rates…especially the media. There is so much misinformation in the “Press”. We have seen articles in national newspapers noting that high wage earners will see their “payroll” taxes increase by 4, 5, 6, even 7 thousand dollars! “Everybody will see their taxes increase by thousands”, so-called journalist decry. This is just not the case. Here are the facts…..
In late 2010, the Obama administration proposed, and Congress supported a temporary 2% reduction in the social security (payroll) tax, from 6.2% to 4.2%. This reduction went into effect in 2011. The reduction was extended for all of 2012. Why Washington ever reduced the revenue, by hundreds of billions of dollars, for a so-called safety-net savings program that is broke and going broker, we will never know. But in the deal reached for 2013, this payroll tax reduction was canceled. Thus all employees, no matter what income bracket, will see an increase in their social security (payroll) taxes of 2% as the rate goes back to the 6.2% rate that existed in 2010 and 20 years prior. For those employees earning $35,000, this means a tax increase of $700, $50,000 – $1,000, 75,000 – $1,500… you get the picture. However the social security (payroll) tax caps out at a maximum wage if $113,700 in 2013, up from $110,100 in 2012. This means that, as a result of this payroll tax adjustment back to pre-existing rates, the highest payroll tax increase an individual earning $113,700 or more can realize is $2,274. This is the most an employee can see their “payroll” taxes increase. We are not saying this is not a lot of money..it is. We are just pointing out that it is not the 4 ,5, 6, 7 thousand dollar increase denoted by many in the mass media.
We have been working with the new 2013 withholding tax tables just released by the IRS. For the most part, those individuals earning $200,000 or less a year, which is most of us, will see little if any change in their income tax withholding. However, after $200,000 ($250,000 married), a new Obamacare tax of .9% will kick in. It will be added to the Medicare tax rate. (There is also a new Obamacare tax increase on investment income.) The new law also introduces a new tax bracket of 39.6% for those wages earned in excess of $400,000 ($450,000 married).
Thus while all Americans will see an increase in their social security (payroll) taxes due to the cancellation of this temporary rate reduction, only high wage earners (the 1% percenters) should see an increase in their income withholding taxes. Now lets hope Washington can do something on the spending side!