Everyone Got a 2% Cut in Pay
ATRA extended the various tax benefits that had expired Dec. 31 -- with one exception. Noticeably missing from the legislation was an extension of the 2% reduction of the employee's share of Social Security Tax withholding and the corresponding reduction in the Self-Employment Tax. This 2% reduction in payroll tax withholding for 2011 and last year was the latest incarnation of George W. Bush's disastrous rebate checks.
So starting Jan. 1, everyone got a 2% cut in pay!
Beginning with the first paycheck of this year, the employee's share of the Social Security tax returns to 6.2% and will apply to wages of up to $113,700, the new maximum Social Security wage base. The Self-Employment Tax will return to 15.3%, with the Social Security component of 12.4% limited to $113,700 of combined maximum W-2 income and net earnings from self-employment.
The maximum Social Security wage base for 2012 was $110,100. So the maximum withholding for Social Security tax increases from $4,624.20 last year to $7,049.40 this year, an increase of 52.45%.
Also new for 2013 is the "Additional Medicare Tax" of 0.9%, a provision of the Patient Protection and Affordable Care Act (aka "Obamacare"). This applies to single employees earning more than $200,000 and married couples who earn more than $250,000. Employers are required to withhold the new tax on wages exceeding $200,000 for all workers, regardless of marital status. So for 2013 the employee Medicare tax rate, normally 1.45%, will rise to 2.35% on earnings in excess of $200,000. The Medicare Tax applies to all wages -- there is no limit as there is with the Social Security tax.