Yes, thanks to FICA there really is less in your paycheck
By Dian Vujovich
If you haven’t received a paycheck from your employer yet, when you do expect some sticker-shock: Unless you’ve gotten an increase in your salary expect less take home pay.
Whether you’re an employee or self-employed, reading about a tax increase and living with the impact of it are two different things. So, along with things like medical and health care costs rising, gas for your vehicles heading beyond 3.50 a gallon mark, and a gallon of milk and loaf of healthy bread requiring nearly a 10 spot, the last thing anyone wants is less money in their pay. But that’s what we’ve gotten.
In case you’ve forgotten—or somehow missed it because the coverage about the fiscal cliff was a neat look-this-way deterrent to the reality of the FICA tax increase— the facts are as follows: In both 2010 and 2011, the FICA tax (it’s used to pay for Social Security) was 4.2 percent but this year has been hiked back up to its tradition rate of 6.2 percent.
As an FYI, the SS tax rate of 6.2 percent, and the Medicare rate, it’s 1.45 percent, haven’t changed since 1990. That is, until the last couple of years when the SS portion was reduced to 4.2 percent in an effort to provide more money to help us through the Great Recession. A recession that I don’t think has come to an end. And quite frankly don’t think will until salaries spike up for the average employee and the minimum wage turns into a living wage as it once was. But that’s a topic for another day.
It has been estimated that the tax increase translates to about $4.50 less in pay a week (about $18 bucks a month or $234 a year) for a single person with a poverty level income of $11,702. For a family of two adults and two children with a poverty level income of $22,811 it means paying more than $456 in taxes a year.
Clearly, for anyone with a poverty level income any minus in the amount of take home pay is a big deal.
For a family earning $64,293. the median U.S. income, the withholding rate means $1,286 more in taxes. Those with salaries of $113,700 or more get to pay an additional $2,425 in taxes.
And the self-employed now get to pay 12.4 percent for the SS tax and 2.9 percent for Medicare bringing their tax responsibility to 15.3 percent on earnings subject to it.
What’s unfortunate is that roughly 80 percent of American households earn less than $100,000 a year. Meaning: The sting from FICA hurts the little gal the most.
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