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Thursday, May 5, 2016

Social Security change takes bite out of pay

Wednesday, January 16, 2013

Workers who are weary of problems ranging from fiscal cliffs to rising gas prices have one more thing to worry about: smaller paychecks, thanks to higher Social Security taxes.

When Congress and President Obama reached an agreement just after New Year's on the so-called fiscal cliff, an extension of lower Social Security withholding rates was not included in the final deal.

Employees are now having an additional 2 percent withheld from their paychecks for Social Security taxes, said Dan Boone, an IRS spokesman. The withholding rate increased from 4.2 percent of a worker's paycheck to 6.2 percent.

Surprise

The lower rate was a stimulus measure that had been in place the last two years, said Andy Lile, a certified public accountant at Winnett Associates PLLC in Shelbyville.

"We had so many things that were expiring at once (at New Year's), and everyone had their own thing they were worrying about, and this one thing did not get a lot of attention," Lile said. "I've heard from workers who were definitely caught off guard."

Before the withholding rate was lowered, the federal government had been using other stimulus measures such as tax credits to try to stimulate the economy, he said.

Readers react

Times-Gazette readers reacted to the Social Security tax withholding issue on Facebook at http://www.facebook.com/shelbyvilletimes....

"If I really believed the money was going into the Social Security Trust it wouldn't be so bad," Marty Harris said. "But the Federal Government will spend it faster than I can earn it."

Laura Bell Whitmire said she knew the extension would be taken away once people got used to it.

Vickey Adcock said, "I see how people are affected and the government needs to stand up and help the people here instead of worrying about people everywhere else. I say help at home before you take from people and put it elsewhere."

Other changes

Another bookkeeping expert said some higher-income workers are facing another tax measure in the new year.

While employees already pay 1.45 percent of their earnings for Medicare, some workers will start paying 0.9 percent more, said Carla K. Ralston of Bookkeeping Plus in Shelbyville.

That additional amount will apply to single workers earning more than $200,000 through individual wages, compensation or self-employment income, she said. The threshold for married workers filing jointly would be $250,000.

The Medicare tax increase is a result of the Affordable Health Care Act, and is not a result of the fiscal cliff, Lile said.

There will be a phase out of itemized deductions and personal exemptions in 2013 for married people filing jointly who earn more than $300,000 (or single filers earning more than $250,000), Ralston said.

Taxpayers earning $400,000 in taxable income ($450,000 for couples) are seeing their tax rate jump to 39.6 percent from 35 percent, a result of the fiscal cliff deal. All other tax brackets are staying the same.

Some good news

There is one piece of good news for many middle-class taxpayers, Lile said.

The Alternative Minimum Tax was a measure that was meant to apply only to wealthy people when it was enacted decades ago, he said, but the tax never accounted for inflation unless Congress made an adjustment every year.

However, Congress made the adjustment permanent starting this year. If that action had not been taken, single taxpayers earning $33,750 a year ($45,000 married couples filing jointly) would have been hit with the tax.

Now, the tax will apply only to married couples filing jointly with income in excess of $78,750 and single individuals with income in excess of $50,600, Lile said.

The permanent fix means middle-class taxpayers will not have to worry about this tax, he said.