What changed in my paycheck? Usually on January 1st of the New Year my paycheck increases, but not this year. What happened? It is not your income tax deduction; it is social security or FICA tax changes.
In prior years, the first paychecks in January often reflected a small upward uptick, even if there had been no change in salary or pay rate. This occurred because of indexing in income tax brackets, standard deductions and personal exemptions. It was always a pleasant experience to see the net pay a little higher. Cost of living seems to creep higher constantly and it was needed to stay comfortable. That didn’t happen this year.
It was January of 2011, two years ago, when the social security tax deduction from everyone’s paycheck decreased from 6.2 percent to 4.2 percent. An instant 2% raise in pay. For two years we have all enjoyed the reduced rate. It was done to stimulate spending and encourage all classes of earners to spend the extra dollars; feed the economy. But all good things must end. The Social Security reserves were running dry at a faster rate than ever before.
That is what has taken a 2% bite out of you 2013 check. Congress knew it was a tax break that was ultimately unsustainable. The Social Security rate has increased once again to 6.2 percent. This is probably the change you will notice first. The Medicare rate has stayed constant at 1.45 for income earners under $200,000.
For 2013, Pennsylvania tax stays at 3.07% and most Pennsylvania townships have not changed the local earned income tax rates. One small tax, withheld from employees to pay for unemployment benefits, often called SUI on the pay check, changed from .0008 to .0007. This would only result in a few pennies of difference.
Take a few minutes to examine your paycheck received in 2013 and see if your employer’s payroll program has calculated the changes correctly. Determine if your current Federal tax deduction will be adequate for the year. If not, adjust the amount by submitting a new W-4 form to your payroll department.
Kathleen A. Baer, CPA is affiliated with Baer and Company, CPAs located in Morgantown. Questions or comments can be addressed to Kathy at Kathy@BaerAndCompanyCPAs.com
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