“Why is my paycheck smaller?”

That just might be this year’s million dollar question.

Many taxpayers, particularly those in the middle class, breathed a brief sigh of relief when Congress passed legislation to keep their income taxes from rising.  What they may not have realized, however, is that workers will have to pay at least two percent more in Social Security taxes, meaning the country’s 160 million workers will see smaller paychecks.  Households that earn $50,000 will pay an extra $1,000 in taxes for 2013.  Individuals earning the maximum 2013 cap of $113,700 or more will pay $2,274, or nearly $200 per month.

 In 2011, the government temporarily lowered the payroll tax rate to 4.2% from 6.2%.  This tax cut was made with the thought that taxpayers would have more cash in their pockets which (they hoped) would provide a boost to the economy.  This tax cut has expired and an additional payroll tax rate decrease is not expected.  A decrease in payroll taxes, which are used to fund Social Security, costs about $120 billion annually and the Treasury Department has made up for the difference with money from general funds.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.