Tags: payroll | tax | increase | 1K

Payroll Tax Increase Means $1K Annually for Every $50K in Salary

Wednesday, 02 Jan 2013 01:18 PM

By Michael Mullins

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Despite Tuesday's fiscal cliff deal heading off income tax rate increases for 99 percent of Americans, the vast majority of those who work are already starting to pay more in 2013 in the form of higher payroll taxes.

Starting Tuesday, the payroll tax has effectively increased by two percentage points as a result of the expiration of a temporary reduction in the Social Security tax, amounting to about $1,000 more per year out of paychecks for workers earning $50,000.

According to the Tax Policy Center (TPC), a nonpartisan Washington research group, approximately 77 percent of American households will face higher federal taxes in 2013 as a result of the payroll tax increase. High-income families will be experiencing the brunt of the tax increases, though a significant number of middle and lower-income families will also be paying more.

According to TPC's analysis, the 2013 tax increase will be approximately $579 for households earning between $40,000 and $50,000, and $822 increase for households earning between $50,000 and $75,000.

The Social Security tax is one of several payroll taxes Americans pay through their salaries, which also includes Medicare Hospital Insurance and unemployment insurance.

Wages up to $113,700 are taxed for Social Security at a combined rate of 12.4 percent, with the employee and employer each paying a rate of 6.2 percent.

Self-employed individuals pay the entire 12.4 percent themselves.

The newest tax increase will be one of several felt by the highest-income Americans who will be seeing their taxes increase overall due to President Barack Obama's tax initiative on the nation's highest earners.

As part of the new tax package, individuals earning above $400,000 and married couples earning $450,000 annually will see their tax rate increase from 35 percent to 39.6 percent.

As a result, high-income households pulling in between $500,000 and $1 million annually would see an average tax increase of $14,812, with households earning more than $1 million getting an average tax increase of $170,341 according to TPC analysis.

Also, individuals making more than $200,000 and families making more than $250,000 are facing an additional new income tax of 3.8 percent as part of Obamacare.

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