at 02:16 PM
The package deal which at least resolved the income tax fiscal cliff did not include a provision that would further extend the "temporary" reduction for employees in their portion of the Social Security "contribution." This means that as of January 1, 2013, the payroll tax for employees will be back to where it historically had been -- 6.2%. Employers will continue to pay the 6.2% "match."
Social Security is funded through payroll taxes: A percentage of an employee's gross wages is subtracted from pay, and the amount is to be separately "matched" by employers. The word "matched" is in quotation marks because for the past two years, employers have been paying a higher percentage than employees. This is because the employee portion was temporarily reduced for calendar year 2011 - a period of time the legislation
called a "payroll tax holiday period"-- to 4.2 %. The Social Security tax rate was scheduled to revert to its normal rate of 6.2% for employees on January 1, 2012. In one of the last legislative acts of 2011, Congress passed and President Obama (on December 23, 2011) signed into law the Temporary Payroll Tax Cut Continuation Act of 2011 (Public Law No: 112-78
). This legislation provided that the tax rate paid by employees for Social Security would remain at 4.2% through the end of February 2012. That "holiday" was extended again by the Middle Class Tax Relief and Job Creation Act of 2012
. Section 1001 of that legislation redefined the term "payroll tax holiday period" such that it expired on December 31, 2012.
Not unsurprisingly in an election year, politicians did not offset the reduction in income for Social Security engendered by the "temporary payroll tax holiday" by any reduction in benefits paid out. Nor was there any reduction in future benefits to be paid to employees who were, in fact, contributing less. It has been reported that for the past two years, payroll tax revenues have been down about $110 billion per year. During the same time period, the amount of wages that are subject to the Social Security tax / match has increased: In 2013, the tax is payable on the first $113,700 in wages.
The long and the short of it is that Social Security payroll taxes are back to normal beginning as of January 1, 2013. Double check those first paychecks of the year to be sure your payroll system has been adjusted accordingly.
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