Your Paycheck May Change Due to Pending “Fiscal Cliff”

You have undoubtedly heard about the pending “fiscal cliff” facing our federal government. What you may not know or remember is the fiscal cliff could result in a decrease in your take home pay beginning January 2013. 

One part of the fiscal cliff, the so-called “Bush era tax cuts,” are currently set to expire on December 31, 2012. Within the Bush-era tax cuts are the withholding tables used to calculate the amount of federal income tax that is withheld from your paycheck. The withholding tables are graduated based on income. Today those rates are 10%, 15%, 25%, 28%, 33% and 35%. If these rates are allowed to expire, they will default back to the prior rates of 15%, 28%, 31%, 36% and 39.6%, resulting in less take home pay. 

Another item affecting your paycheck beginning January 2013 is the FICA (Social Security) tax rate. President Obama signed a series of laws that reduced the FICA withholding rate for employees from 6.2% to 4.2%. The 4.2% FICA rate has been in effect for all of calendar years 2011 and 2012. The rate is scheduled to return to 6.2% in January 2013. This change will decrease the amount of your take home pay as well. 

We will continue to closely monitor these tax changes that could result in a noticeable decrease in your take home pay beginning in January. We’ll communicate with you again when we know more. If you have any questions, please contact Steve Jordan, Payroll Specialist, at ext. 14908.