Payroll Tax Increase Coming for 2013

Payroll Tax Increase Coming for 2013

Employee FICA Tax Reverts to 6.2% starting January 1, 2013

After two years (2011 and 2012) of being reduced from 6.2% to 4.2%, the employee FICA payroll tax on employment wages is set to revert back to 6.2% effective the start of 2013. The current maximum wage base for the calculation is 110,100 for 2012 and is set to rise to 113,700 for 2013.

According to the Wall Street Journal, there does not appear to be any political motivation from either the Republicans or Democrats to extend the FICA reductions in to 2013 so right now it appears that the tax will revert back on January 1, 2013. It is estimated that the reduction has cost the US government $120 billion per year for the last two years and the reduction saves the average family $933 each year.

As of today, with two presidential debates completed and tax policy being a major discussion items between the candidates there has been no mention of this tax increase that will impact all working Americans very shortly. For the average working American earning $50,000 per year this is will mean an additional $1,000 per year tax hike just for social security taxes. The FICA matching tax amounts for employers will remain unchanged since it was never part of the temporary tax cut.

Payroll Taxes Reductions for Employees Unlikely to be Extended

The Unstoppable Rise of the FICA Wage Base

In the last 20 years, the portion of earnings subject to FICA taxes has risen by almost double. Social Security wage base increases are based on a complicated formula that is supposed to index the tax base for wage inflation. Review the
Social Security tax wage base increase history here.

But, just in the last two years the wage amount subject to tax has increased 6.5%. This at the same time that the average working American is earning 1.5% less in 2011 than the prior year and was the second year of median wage shrinkage.

FICA Taxes Paid by Employers Not Available for Employees
Many working people have no idea that their employers are obligated to pay the same FICA tax amount that the employee has withheld (and paid) on each paycheck. Dollar for dollar, the employer must pay a matching amount also. (Except in 2011 and 2012 when the employer paid 48% more than the employee!) So here we have a major cost to employers for every dollar the pay to every employee. Yet many people fail to see the correlation between tax burdens on employers and the wariness of employers to hire addition people or to pay existing people higher wages. In a real sense, money for FICA taxes paid by employers is money that could have been paid to the employee. The FICA tax to employees is actually double the amount shown on their check since the employer had to pay that money to the government instead.

To estimate your costs for the employee and employer obligations for Social Security taxes for 2013, try our Social Security Tax Withholding Calculator.

For an interesting dialog about this, click here and READ THE COMMENTS from Joe The Economist as he schools somebody about it.

Companies Don’t Pay Taxes – Consumers Do

You may find this idea shocking, but ask yourself if any company actually pays taxes. Evidence shows that any time a company must pay higher taxes, it simply raises it prices to cover the obligation. If all businesses in the same industry are taxed the same then their marketplace competitiveness is not impacted (due to increased cost versus their competitors) and they are free to raise the price of their product to cover the tax increase. So at the end of the day, the consumers of those products pay more than necessary and the business being taxed has passed the increased costs to their customers. The cost of any tax increase is ultimately borne by the consumer and the public. The business being taxed is simply an additional tax collector for the government and every consumer is paying a hidden tax bill

A Letter to the editor of the High Point Enterprise (High Point, NC) written by Charles Baker pointed out:
“Taxes are a part of the cost of doing business and as such become a part of the price of products or services being produced. Paul Harvey said it best, “Only people pay taxes.” Charge Exxon a few million dollars in taxes and you simply raise the price of gas and the other products produced by Exxon. All taxes are paid by the final consumer. Politicians, media spokesmen and letter writers all hide this fact in rabble-rousing rhetoric. The pitiful part of the story is that the 45 percent of Americans who pay no direct taxes at all are being scammed by socialists and their spokesmen. They think they escape taxation. The person who actually pays the highest percentage of his or her income in taxes is the poorest among us. They have no product or service to sell except their personal labor and without the ability to pass their taxes to anyone else, they – along with all other consumers – pay everybody’s taxes.”

Only consumers pay taxes.

More is available from finweb.

PEO Clients – Telling Your Employees

PEO Clients should be ready to explain the tax increase to their co-employees that will be effective for the first payroll period in January 2013. Unless the employee got a raise, take home pay will be lower and employers will get the questions. Employers should be ready to explain the reason for the lower net check and be ready to duck.
A history of the rise in wage base for FICA payroll taxes