Even though the fiscal cliff was thwarted by last minute legislation, middle class families like ours can expect to pay an additional 2% in payroll taxes in 2013. This is not a new tax. Instead, the 2% rate hike is the expiration of a temporary cut in Social Security withholding that workers have been enjoying these past two years.
We noticed the increased Social Security withholding in my husband's first paycheck of the year. The 2% hike saw a reduction in his paycheck of $38.93. While this might not seem like much, over the course of the year that extra $38.93 will add up to an additional $1000 of payroll withholding. Those of us who are self employed like I am find this rate increase even more burdensome. 6.2% is just half the social security rate (employers pay the other half). A 2% increase for the self employed means that instead of paying 10.4% into Social Security, we'll now be contributing 12.4%.
Middle class American families who earn a collective average of $67,000 a year will find their payroll taxes increase by $1340. For struggling families who've already cut back on expenses, paring back our monthly budgets again is going to hurt.
Our family has already been living on a shoestring budget for the past six years. We've eliminated little luxuries and discretionary spending, drive 30 year old cars, buy what we need second hand, and grow most of our food. Since there is nothing more that we can possibly scale back (short of selling our home), finding $110 a month means that we have the option of either putting less into our retirement accounts or scaling back our debt reduction plan.
Fortunately for us, we do have that option. Many other families aren't so lucky and will find themselves having to reel in the spending once again as the increased payroll taxes take hold.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.News sources:
Finance: Yahoo.news The New (Old) Payroll tax is starting to hit hard.
Big Story: AP.org Cliff Avoided: Congress stave off tax hikes
Bloomberg.com/news Smaller payday trims worker's splurges.
More by this contributor:
- Politics & Government
- Budget, Tax & Economy
- Social Security
- payroll taxes