End of payroll tax holiday draws mixed reactions

January 8, 2013
Jason Drill, an investment adviser from Cecil Township, discusses the higher Social Security tax Tuesday at First Commonwealth Bank in South Strabane Township. - Rick Shrum / Observer-Reporter Order a Print

The end of the payroll tax holiday won’t affect just anyone, Bill Greco said.

“In general terms, it is everybody who gets a paycheck, everyone who sees any kind of income.”

As a certified public accountant, Greco is well versed in the Social Security payroll tax, which is gaining unpopularity nationwide because of the perception that it is picking people’s pockets while delivering another smack to the middle class.

For years, it was levied at 6.2 percent of a worker’s wages. Then, heading into 2011, the tax was temporarily reduced by 2 percent, resulting in a little extra net pay. The 4.2 percent rate endured through 2012, when – unlike the rest of the nation – it could not avoid a fiscal cliff.

The tax package that Congress passed just after the new year averted the much-publicized cliff, a sharp rise in the budget deficit that would have occurred from tax increases and spending reductions that would have taken effect. But the accord included the expiration, not an extension, of the payroll tax holiday.

Starting with the first paycheck of the new year, it’s back to 6.2 percent for anyone earning up to $113,700 in 2013.

For some people, it was a return to a familiar rate, but for many others, it was an unkind cut in pay at a time when the cost of everything, it seems, is rising, and national and global financial waters remain muddy.

Every wage earner, indeed, will have a lighter wallet. For example, a person making $50,000 annually will lose about $1,000 in take-home pay this year. That’s about $19 per week.

The Tax Policy Center, a joint venture of the Urban Institute and the Brookings Institution based in Washington, D.C., estimated that people making $40,000 to $50,000 will pay $579 more in taxes; $50,000 to $75,000, about $822; and $75,000 to $100,000, about $1,206.

Greco, of Beallsville, said Tuesday he wasn’t sure how many people “are aware of the change. Many won’t be until they get their first paycheck.”

A random sampling of shoppers and customers in South Strabane Township Tuesday seemed to bear that out. About a dozen said they didn’t know enough about the tax, and how it would impact them, to comment.

Brian Smith, chief executive officer at Washington Financial in downtown Washington, said Monday he hadn’t “heard anything” from the general public about the change.

President Barack Obama wanted the 4.2 percent tax to be extended, but Congress balked. Greco said he was surprised the extension did not occur, “but for whatever reasons, no one seemed interested in continuing this.”

Analysts said that members of Congress were opposed to doing that partly because Social Security needs the money. So does he, said Mike Munday of Avella.

“Two percent at one time is way too much,” Munday said, adding he will absorb a big hit because he has a well-paying job. “One percent at one time would have been better.

“Why doesn’t the government look at a solution other than increasing their pay?”

Smith said the 6.2 percent payroll tax, as it pertains to Social Security, “is long range for a lot of people.” He added that he “doesn’t really see (that tax) having any impact on our company. We will have to pay higher taxes, but we don’t expect a higher payroll tax to have an effect on our deliquencies.”

Jason Drill, an independent investment adviser from Cecil, is taking the increase philsophically.

“We’re back to where we were, so I guess the holiday is over,” Drill said. “I foresee higher taxes overall, and this is part of it.”

He said his clients “have the same view,” and they and his family had planned for the probability of higher taxes in 2013.

They were prepared to sidestep their personal financial cliffs.

Rick Shrum joined the Observer-Reporter as a reporter in 2012, after serving as a section editor, sports reporter and copy editor at the Pittsburgh Post-Gazette. Rick has won seven individual writing awards, including two Golden Quills.

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