How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay?

By :: April 5th, 2013

2013 is a tough year if you owe payroll tax, as most of us do. Not only did the 2010 payroll tax cut die at the end of 2012, but high-income workers now owe an extra 0.9 percent, thanks to the Affordable Care Act. Economists worry about what the combined new taxes will mean for workers’ net pay, consumer spending, and an economy still trying to get its footing. Now the Tax Policy Center’s updated Payroll Tax Calculator shows just what the tax hit means for individual households.

The 2010 tax act cut the workers’ rate for the Social Security payroll tax from 6.2 percent to 4.2 percent for 2011 and 2012. Congress allowed the reduced rate to expire as scheduled at the beginning of this year. The Tax Policy Center has estimated that the higher tax rate will take $115 billion out of workers’ pockets this year and cut consumer spending.

The ACA created a new “additional Medicare tax” that kicked in for the first time in January. Individuals earning more than $200,000 and couples earning more than $250,000 now pay a 0.9 percent tax on earnings above those thresholds. Few of us will pay the new tax, but it will nip at high earners’ wallets.

Finally, the cap on earnings subject to the Social Security payroll tax increased from $110,100 to $113,700.

A few examples illustrate the impact on workers (ignoring changes in income tax withholding):

  • A worker earning a $40,000 median wage will take home $800 less this year than in 2012, a 2.3 percent reduction caused entirely by the expiration of the payroll tax cut.
  • A single high-earner making $120,000 will see her payroll tax bill jump more than $2,400, a 2.5 percent cut in take-home pay. For her, the culprits are the higher tax rate and the higher income cap.
  • A high-earning couple with each spouse earning $200,000 will pay about $5,300 more Social Security tax and $1,350 for the additional Medicare tax, reducing their net pay by 1.8 percent. They get hit by all three changes.

Try out our new calculator and see how the higher payroll taxes will affect your bottom line.

12Comments

  1. GregFromCos  ::  2:03 pm on April 5th, 2013:

    I really wish they’d gotten rid of the full Bush Tax cuts and kept the payroll tax cut or even expanded it and then slowly allowed it to phase out as things get better. But neither party was willing to go that route.

  2. Fred  ::  10:47 pm on April 5th, 2013:

    “A single high-earner making $120,000 will see her payroll tax bill jump more than $2,400,”

    No, because the earnings cap is $113,700.

  3. SATURDAY MOURNING SANDBOX | Witch's Will  ::  9:34 am on April 6th, 2013:

    […] take-home pay with this handy-dandy calculator.  Quick take: a worker making 40k a year will lose $800 this year alone, a decrease of […]

  4. 04.06.13: Your Morning Buzz | Oregon Emerging Local Government Leaders Network  ::  9:52 am on April 6th, 2013:

    […] How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay? 2013 is a tough year if you owe payroll tax, as most of us do. Not only did the 2010 payroll tax cut die at the end of 2012, but high-income workers now owe an extra 0.9 percent, thanks to the Affordable Care Act. […]

  5. Vivian Darkbloom  ::  12:33 pm on April 6th, 2013:

    The answer is actually “yes” *because of* the increased earnings cap:

    Before 2013 : $110,100 x .042 = $4,624.20
    After: $113,700 x .062 = $7,049.40

    Difference: ($2,425.20)

  6. ND  ::  12:46 pm on April 6th, 2013:

    A tax hike that will again disproportionately hit two-earner marriages over sole breadwinner marriages (when both marriages are at the same aggregate income level and especially when benefits are taken into account). And will disproportionately hit single people as well.

    This also further shifts liability for Baby Boomers’ benefits in Social Security forward to Gen-X and younger people, because there is still no capital/property-earner tax to help support the progressivity in benefits in Social Security (or the program has not been made a more conventional insurance plan without the progressivity in benefits). In Medicare, the new ACA tax on high-income applies to capital/property-based earnings as much as wage earnings but is it enough to prevent deficit in Medicare from the progressivity in the benefit scheme?

    The average sole-breadwinner marriage runs a deficit (in benefits received to taxes collected) in Medicare of 14:1 (according to a recent Urban Inst study); in Social Security it is something like 2:1. (In Medicare, this also happens with unmarried families set up this way with a nonearner parent.)

  7. Emilia Nolette  ::  7:27 am on April 8th, 2013:

    Over all the tax hike could be cutting around 2% of take home pay.

  8. Tax Roundup, 4/8/13: One week to go! And thinking out of the envelope « Roth & Company, P.C  ::  9:11 am on April 8th, 2013:

    […] Roberton Williams, How Much Will 2013’s Payroll Tax Hikes Cut Your Take-Home Pay? […]

  9. Michael Bindner  ::  10:05 pm on April 9th, 2013:

    This means taking your lunch one more day a week, or going to McDonalds instead of a fancier place – or possibly skipping a nite out for dinner. In other words, if you want fast service eating out, go on Monday, as this is the day people will be cutting back on. Sadly, this will hurt the service economy the worst. As for me, I am still jobless, so it effects me not at all, although it does effect my wife’s earnings a bit. My lack of UI benefits has more of an effect however, as they have run out.

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