Mike DiSabatino CPA
Are Payroll Taxes Going Up?
Now is the time to review your paycheck to ensure you have proper withholdings for 2012. Tax rate brackets have been expanded in 2012 so more income will be taxed at lower amounts. However, unique to 2012 is the expiration of the social security 2% tax break. As you recall all employees had their social security tax rate reduced from 6.2% to 4.2% for 2011. This one-year tax provision will become a hot topic for the balance of the year in Congress.
| The bad news? | The rates go back to 6.2% and you see a 2% reduction in your paycheck. |
| The good news | Congress passes a proposal to extend the tax break AND adds a tax break for the employer portion of the tax. |
So what will happen in 2012?
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Option 1:
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The rates go back to 6.2%. In this case your paycheck will become 2% lower. The actual impact on your take home pay could be reduced somewhat by increases in the tax brackets. |
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Option 2:
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An Obama proposal to extend the tax break AND add a tax break for the employer portion of the tax is passed by Congress. In this case there would be no change in your paycheck and employers would see additional profits from a reduction in payroll taxes. |
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Option 3:
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Something entirely different is proposed by Congress. In this case it is anyone’s guess what will happen to payroll taxes. |
So what action should you take now? No one is sure what Congress will do, if anything, so pay attention and plan accordingly. It is probably best to assume the tax law will revert back to prior rules. Most of us can ill afford to see our paychecks lowered by 2% without planning for it.
