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Why your next paycheck will be smaller

Middle-class taxpayers avoided an income tax increase in the fiscal cliff budget deal, but the Social Security payroll tax will be higher for everyone.

By Karen Datko Jan 2, 2013 1:13PM

Pay check stub showing taxes withheld © Comstock, Comstock, Getty ImagesNow that the fiscal cliff is in the rearview mirror with a deal that raises income and investment taxes on the wealthiest Americans, there's one tax hike that most U.S. workers will not escape.


On the final day of 2012, the payroll tax for Social Security reverted to its normal rate of 6.2% -- up from the 4.2% it's been since 2011. The tax had been temporarily reduced to give U.S. households extra spending money to help stimulate the economy.


For a household grossing $50,000 a year, the return to the old level will cut take-home pay by $1,000 a year, or $19 a week. For someone making $30,000 in pretax income, the higher tax means $600 less a year.


How much more will you pay? The Wall Street Journal provides a calculator, or you can consult this handy chart. Keep in mind that the payroll tax applies only to the first $113,700 of income.


Extending the payroll tax holiday wasn't even part of the discussion as Congress narrowly avoided the fiscal cliff with a deal that raises income and investment taxes on those making $400,000 a year ($450,000 for couples).


However, by allowing Social Security taxes to return to their previous level, Congress can't say the middle class was spared.


"It's a huge hit," Joel Naroff, president of Naroff Economic Advisors, told The Associated Press. "It hits people whether they're making $10,000 or they're making $2 million. It doesn't matter who you are . . . . The lower your income, the more of your income you're (spending). So if your taxes go up, it's going to come out of your spending."

The Washington Post says this will be the first tax increase nearly half of Americans have seen in their paychecks (other than when your income grows and you move into a higher tax bracket).

The Post added:

"'We haven't seen broad-based individual tax increases at the federal level in the last 30 years,' said Owen Zidar, an economist at the University of California. 'In the 1960s through the 1980s, payroll tax increases affected most taxpayers, but the vast majority of broad-based tax changes have been cuts rather than increases.'"

On the other hand, Social Security has to be funded. That money normally comes from a 12.4% payroll tax, half paid by you and half by your employer. Only employees got the reduced 4.2% rate over the past two years.


The estimated $215 billion workers didn't pay to Social Security for 2011-12 was replaced with money borrowed by the federal government, which added to the national debt.


Will the economy suffer because the tax holiday expired? Maybe. Maybe not. Says the Post:

"Economists say the expiration of the tax cut will be a major drag on the economy this year. Estimates suggest it could cost between 500,000 and 1 million jobs, leaving the unemployment about 0.4 percentage points higher than it otherwise would be."

However, Joseph Rosenberg, a research associate at the Urban/Brookings Tax Policy Center, told American Public Media's Marketplace that if the Bush tax cuts are extended (and they were for the vast majority of folks), "then the impact of the expiration of the payroll tax is not likely to have a significant economic impact."


It is the wealthy who will be seeing the biggest tax increase as a result of the fiscal cliff deal. Says the AP:

"For 2013, households making between $500,000 and $1 million would get an average tax increase of $14,812, according to the Tax Policy Center analysis. Households making more than $1 million would get an average tax increase of $170,341."

Will you miss the extra $19 or so a week you took home during the payroll tax holiday?

More on MSN Money:


Jan 3, 2013 2:56PM
C'mon folks, the only tax raise most of the middle class will see is the return of the social security deductions to the rate it was before the temporary hiatus.  No big deal.  It should have been at the present rate all along.
Jan 3, 2013 2:54PM
Jan 3, 2013 2:40PM

"Greed just as JUSTICE is also blind!"

                    I said that.

Jan 3, 2013 2:39PM
The reason why is so the politicians check won`t shrink. Simple mathematics for dummies
Jan 3, 2013 2:03PM

Why not have all the politicians contribute to the fund like all the Americans they represent.  Maybe then we all would not have to take the 2% hit in our paychecks.

Jan 3, 2013 1:57PM

All you guys have fallen for it once more.

the media and government has hade you focus on this small cliff while all the time raising cost of your goods you need to eat and get to work with.

Hell 20 % out of your pay checks want cover taxes you pay for food and fuel.




your talking 20 bucks a week when fuel and gas just cost you another 150 bucks a week.


come on people

Jan 3, 2013 1:54PM
Our greatly overpaid Congress just voted themselves another raise. The socialist low life blood suckers we have in Washington know what they are doing! Get the hell out of Iraq, Afganistan and any other country where we are not wanted NOW! So much of the billions and billions of taxpayers money that has been funneled into too many countries have made a few multi millionaires and armed these countries; Arms that they use to continue to kill our service people who shouldn't be there in the first place. Illegals in this country?? Pack them up and send them back to where they came from. Working American citizens are supprting Illegals with benifits our citizens arn't allowed. It is time to pull the plug on the misfit politicians in office now who are bound and determined to destroy the America we know and love. Wake up America; You are being enslaved. A .02 0/0 tax inctrease here, a .02 0/0 increase there is like rats nibbling on a piece of cheese; Eventually there will be no more cheeseleft for them to nibble on. SOCILISM!!!!! Roy
Jan 3, 2013 1:40PM

My daughter took the 2% savings last year and applied it as extra princ. to her 185k mortgage. In her case it was about $20 a week or $80 per month applied to princ. only. If she could keep doing this it would save her $22k in interest and take 4.4 years of the loan.

If I had a mortgage I would have done the same.....Yep, I am pretty sure my family can generate a much better return on 2% of income then the ss admin doops.

Jan 3, 2013 1:37PM
I am a single person in my forties making just under 38,000.00 a year.  I just discovered that I will be paying 629.72 more in taxes this year.  Sorry I am all for paying my fair share but this is ridiculous.  I live a very conservative lifestyle and am barely making it now.
Jan 3, 2013 1:27PM
I don't believe anyone wanted a "Tax Holiday" 2 years ago when it occurred. So I have to ask, was Obama's giving us a $13 dollar increase in our paychecks two years ago worth it. Don't know about you, but I was paid $40 less this paycheck, and was told it will be worse next time because that didn't even include the 2% increase in payroll tax. BOY OH BOY!!! Can't wait to see what happens next.

My advice to all the rest of the working class, get out of debt before it's too late. Pay off those cards, take your money out of the banks (your only getting a measly 1% anyway) and stash it at home somewhere. Don't give the US government another foothold.

Jan 3, 2013 1:26PM
I've been paying in to social security my whole working life.  I probably wont see a dime of it becuase of all the tax cuts in the 80's and the borrowing from social security to pay for the spending, thats what turned it into a poor tax because it use to be set aside and untouchable by congress.  Taxes on the low end have always been stable while the top end has gotten tax cut after tax cut.  The only thing that happened when the tax rate on the rich dropped from 70% to 50% from 1981 to 1982 is that the stock market jumped between 12-15% due to exceeding earnings projections by a lot, now that those taxes weren't paid.  All these tax breaks have done is manipulate the stock market for years and allow the rich to get richer. 
Jan 3, 2013 1:20PM

Two things should have been done differently with this deal, or non deal. Either restrict drawing Social security benefits after a certain income amount is attained, or as an option to those greedy pukes who will say, :If i pay into it, i deserve to draw it out", Just raise the rates back to 6.2% on those earners making over 400K. Any tax increases, SSI or whatever, should have been borne by those in the upper income brackets. This is not relief for the middle class. This was a slimy back-handed giveaway to the Repubs for Okaying the rotten deal in the first place. No-one earning under 250K should be seeing increases in anything, quite the opposite, we should be seeing reductions to help us stimulate the economy. Despite what the elitists will say, The middle class drives our economy, not small, big or any other business. It's people spending that do the most to stimulate the economy. So this means most will have at least $30-$40 less to spend each week. Thanks, Congress, Senate and Obama. Let me be the first today to say you all suck.

Jan 3, 2013 1:20PM
the increase is because of the health reform bills passed under the obama administration. you know, obama care.

i'm laughing and laughing at the ignorant who think government run anything is of any worth.

the US government is evil
Jan 3, 2013 1:13PM
It should not taxed on individual income but rather on household income..let's say the household income is $150,000 the maximum tax one has to pay is $2,274. On the other if it is taxed per individual then a person making $65,00 is taxed $1,300 and some one making $85,000 is taxed $1,700 which adds up to $3,000 compared to $2,274.....just my opinion
Jan 3, 2013 1:09PM
Why doesn't anyone blame that excuse of a president we's not only Congress and Senate, it's also that POS that all the free loaders, mexicans and hollywood wanted in office, well now you've got it...I just hope that everyone that voted for that POS suffers along with the rest of us that actually work for a living.... 
Jan 3, 2013 12:56PM
The reduction in our Social Security tax was only a temporary help. We now have to fund our SS at its normal level, 6.2%.
About the Bush tax cut extension: For once, in 30 years, our federal tax burden has been shifted a tiny bit toward the super wealthy. The middle class got the tax cuts extended - permanently - which means that these tax rates are Obama's tax rates, yet raising our tax revenue by ending the tax cuts to the 1%. This means, decreasing the debt.
The GOP delayed the spending cuts, so they can use the coming debt ceiling as a leverage to get the cuts they (the 1%) want (privatize (ruin) our SS and MC).
Obama don't turn your back to GOP - and thank you Obama for being the voice of the 99%
Jan 3, 2013 12:47PM
Of coarse people are going to miss money out of their pay. What a stupid report anyway. People are going to cut back on spending to make up for loss somewhere; what the hell does congress think is going to happen, and where is all the Obama dollars that was promised to us. !!!!!!!!!!!!!!!!!!!!!!!!!!we need more Obama dollars!!!!!!!!!!!!!!!!!!!!!!!!!!!
Jan 3, 2013 12:46PM
Will you miss the extra $19 or so a week you took home during the payroll tax holiday?  the Dem's told us we couldn't make it with out it. So which way do you want "us misinformed" to respond? The POTUS demonstrated he didn't care by jumping on the jet to HI. He parties, I work to pay for the dance.

Jan 3, 2013 12:44PM

All self imposed problems by our so called concerned politicians. Once again they save the middle class with there excellent work on the fiscal cliff deal.

Jan 3, 2013 12:44PM
Why your paycheck will be smaller= obama
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