Feel the pinch?
Jul 21, 2015 at 12:00 PM
That means most local residents will see 2 percent less in their paychecks beginning this month, even though the rest of their tax situation likely will remain status quo.
Designed as an economic stimulus two years ago, the Social Security payroll tax was lowered from 6.2 percent to 4.2 percent. As of Tuesday, it returned to its pre-2010 level.
If you make $50,000 a year, you'll say goodbye to 2013 with $1,000 less in your annual earning statement.
Despite the expiration of the payroll tax cut, Congress' fiscal cliff deal on New Year's Day essentially leaves matters alone for individuals making less than $400,000 and couples bringing in less than $450,000.
Student loan interest will remain deductible, child care credits remain intact, the estate tax threshold stays at $5 million, and capital gains and dividend taxes stay where they are — unless you bring in more than $400,000.
Unemployment benefits will also remain intact for another year.
The Tax Policy Center, a nonpartisan Washington research group, estimates that by the time ink is put to 2013 income tax forms and deductions are factored in, 77 percent of American households will face higher federal taxes under the fiscal cliff agreement — most of it due to the expiration of the payroll tax cut.
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center analysis. Households earning between $50,000 and $75,000 will see an effective hike of $822.
But the tax increases would have had a much steeper incline had we gone over the cliff.
Tax cuts that have been in effect since the Bush era would have expired, leaving many Americans in higher tax brackets and without familiar credits and deductions.
The Tax Policy Center estimates the $400,000 and $450,000 thresholds in the deal will protect 99 percent of Americans from additional levies, other than the payroll tax change.
George Gardner, an accountant for De Boer Baumann & Company in Grand Haven, said he doesn't think the expiration of the payroll tax cut will have much of an impact on local residents.
“It's just putting people back to where they were,” he said. “If you're making $50,000 a year, that would be about $83 a month. My opinion is that probably won't have a huge impact on spending. It's like $20 a week. If gas went up 20 cents a gallon, it might be the same thing.”
Gardner said the expiration of the Bush-era tax cuts would have had a much larger impact locally and nationwide, although he said there is no way of giving examples because every situation and deduction status is different.
“There are some good things that happened for people in the 10-15 percent brackets and for people earning up to $400,000 or $450,000,” he said. “There won't be any change for them (except the payroll tax change).”
Had the cliff taken control, capital gains rates would have jumped from 15 to 20 percent for many taxpayers, and dividends would have been taxed at ordinary income rates. Tax brackets would have been bumped up for the majority of Americans.
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