Why did my paycheck shrink in 2013?

Second Friday has passed us and it’s likely you’ve been paid. If you keep track of how much money you’re making, you may realize that it’s suddenly shrunk. My wife noticed almost $40 dollars missing from her paycheck (a small amount until you consider that’s over $1000 a year).

Why is my paycheck smaller?

Turns out, the middle and lower class took a good hit under the new tax deal. A fairly substan­tial tax increase occured when Congress decided to let the payroll tax-cuts end.

In 2010, payroll taxes dropped from 6.2% to 4.2%. This gave my wife (and many others) over $1000 dollars in kept income over the course of a year (think of the things that kind of money could do in an IRA or going towards a nice vacation). Now that money is going back to the US Government.

If my taxes increased, why does everyone say there are only tax increases on the rich?

Congress and the President can tell you tax hasn’t increased for the middle and lower class because no new tax occured. Instead, they just didn’t continue a 2-year-old tax break. Basically, they can lie if they word it right

Why should I worry about $100 or so a month tax increase?

Because over the course of a year, $100 dollars turns into $1200. And $1200 dollars buys a lot. Think of what would happen if you put that money into an IRA, towards the purchase of a home, or saved it up all year to spend at Christmas time (saving yourself from the dreaded Christmas debt).

I’m not bothered by a tax increase, but when Congress goes around saying it has only raised taxes on the super rich while allowing everyone’s taxes to increase 2%, they’re lying and that bothers me.

5 Responses to “Why did my paycheck shrink in 2013?”

  1. Mike Luna January 12, 2013 at 9:52 AM #

    For those in a lower tax bracket, do they get that back at the end of the year? Or does this money just disappear into the system?

    Beyond that, where does this money go? Is it for anything in partic­ular, like Obamacare?

    • Alex January 12, 2013 at 10:10 AM #

      Those who get full refunds will still see their money refunded in the same way. So, presum­ably, some people in low tax brackets will get it back in April 2014.

      As for where the money goes, it’s general income tax so it goes into all the places income tax goes, which is…kind of wherever. Income tax isn’t exactly a slush fund for the Federal Gov, but it might as well be.

      • Mike Luna January 12, 2013 at 11:23 PM #

        Hey, maybe they’ll put Rachel’s $40 to good use. Maybe they’ll pay off the deficit with it…or something.

  2. ixnayonthetimmay January 12, 2013 at 4:36 PM #

    It is true the payroll tax for Social Security did go up from 4.2 to 6.2, but as was stated already it was lowered from 6.2 in 2010, presum­ably as a temporary measure. Some people wouldn’t consider this a “tax increase” per se, but to me a hike is a hike.

    The payroll tax component (or FICA) is deducted auto­mat­i­cally from Joe Employee’s check per this percentage right along with the regular income taxes. While it is capped above a certain amount (I think over $108k or some such), it isn’t bracketed like income taxes are. Also, there is no way to get a refund when filing, since exactly the right amount is withheld throughout the year.

    In theory, the FICA tax is supposed to be separate from the general fund, but in reality we all know this isn’t true, since the govern­ment has over time just taken the money and put IOUs in its place.

    Apart from this financial misman­age­ment aspect, I am not neces­sarily against the payroll tax going back to 2010 levels, since Social Security is one of the big long-term potential drivers of our deficit. But I do agree though that this whole thing has been misrep­re­sented as “just a tax hike on the rich” when it clearly cuts across more than that.

  3. ixnayonthetimmay January 12, 2013 at 4:44 PM #

    I need to correct and say that there IS a way to get a refund of FICA taxes when filing, but only of you as a worker paid FICA taxes over the $106,800 cap; likely if you only switched jobs in the middle of the year already making well over this amount. It’s a scenario rare enough to mean that most people won’t ever see a refund of FICA taxes.

    http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax

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