It seems we are still here - at least to me. With the end of the world averted on December 21st, 2012, the next big fear was the “fiscal cliff”. It seems a temporary stay has been issued and we can move on to the next soul crushing fear facing us. Stay tuned to your favorite news channel to find out more about what next you should be very very afraid of.
I am making lite of some truly important challenges facing us both as a nation and individually. But I do so to try and bring perspective – in spite of the constant state of fear the world seems to put on our shoulders every single minute of every single day, somehow we persevere.
I would say to you the same things I say to my clients; focus on what you can control and don’t lose sight of the important things in your life. If living in fear is important to you then you have my sympathy but not my attention. Now on to the tax issue.
Because of the expiration of the temporary Social Security payroll tax cut many of us were enjoying the past two years, the new tax deal will, at this point anyway, result in additional federal taxes on all wage earners.
Social Security is financed by a 12.4 percent tax on wages up to $113,700. Employers pay half and workers pay the other half in the form of withholding from your paycheck. This reduced the share paid by workers from 6.2 percent to 4.2 percent for 2011 and 2012, saving a typical family about $1,000 a year.
This is not a change in any tax rate for almost everyone – the new tax package would increase the income tax rate from 35 percent to 39.6 percent on income above $400,000 for individuals and $450,000 for married couples only.
While this will result in some drag on the economy, I believe that bringing the full funding of Social Security back to previous levels will be a plus in the long run.
According to CNBC* here are the amount of increases each household should see in 2013:
Annual income: $20,000 to $30,000
Average tax increase: $297
Annual income: $30,000 to $40,000
Average tax increase: $445
Annual income: $40,000 to $50,000
Average tax increase: $579
Annual income: $50,000 to $75,000
Average tax increase: $822
Annual income: $75,000 to $100,000
Average tax increase: $1,206
Annual income: $100,000 to $200,000
Average tax increase: $1,784
Annual income: $200,000 to $500,000
Average tax increase: $2,711
Annual income: $500,000 to $1 million
Average tax increase: $14,812
Annual income: More than $1 million
Average tax increase: $170,341