New increase in FICA tax hitting paychecks
You've probably noticed by now your net pay has gone down as you received your first paychecks of 2013.
That's because a two-year payroll tax holiday expired on Dec. 31,and was not renewed as part of the fiscal cliff deal.
Every worker will see a 2 percent FICA tax increase now that the rate has reverted from 4.2 percent to 6.2 percent. The increase in the FICA tax, which is deducted from workers' paychecks, will cause take-home pay to decrease by $600 per year for workers with an annual income of $30,000. Workers with an annual income of $50,000 will bring home $1,000 less per year, while workers with an annual income of $100,000 will bring home $2,000 less per year.
"While two percent may sound like a modest increase, the toll it takes on discretionary spending is much greater," said Barry Habib, chief market strategist at Residential Finance Corp.
Consider a couple, each of whom earns $45,000 per year. They will likely pay $26,000 in taxes, and their living expenses may be in the range of $46,000 a year. That leaves a couple earning $90,000 in combined income with $18,000 in discretionary spending.
A 2 percent tax hike resulting in $1,800 less per year will feel more like a 10 percent reduction, as they're losing 10 percent of their discretionary income, Habib said in a press release.