by Willie Thomas Butler
With the expiration of the Bush Era Tax Laws and the more recent Payroll Tax Holiday, everyone subject to Social Security payroll tax (or FICA), including most self-employed, will return to the higher withholding rate this week. So here are some things to consider if you are paying this tax:
Payroll tax cut ends… And a New Rate begins.
Workers who paid 4.2 percent of their income into the Social Security system in 2011 and 2012 will now resume contributing 6.2 percent of their earnings in 2013, up to the earnings tax cap of $113,700. This means the average family with a $50,000 annual income will get around $960 less in take-home pay in 2013, unless the tax relief is extended. However, that seems highly unlikely with Congress.
The payroll tax cap will also increase by $3,600, from $110,100 in 2012 to $113,700 in 2013. Once income exceeds this threshold, the mandatory payroll and self-employment tax imposition ceases.
How this might affect your paycheck or estimated tax obligations? You can find out using this tool:
Change in Social Security procedures… Including a higher earnings limit.
On March 1, 2013, Social Security recipients will no longer receive benefit checks by mail. Instead, retirees will be required to have their Social Security payments deposited into a bank or credit union account or loaded onto a prepaid Direct Express Debit MasterCard. Having a bank account is encouraged…
Some positive news is that Social Security beneficiaries began receiving payments that were 1.7 percent larger in January 2013. Accordingly, the average monthly benefit in January increased from $1,240 to $1,261 as a cost-of-living adjustment.
Beware of Withholding's on Older Workers
Workers between ages 62 and 65 can earn up to $15,120 in 2013, before being subject to a much higher tax withholding. Specifically, after reaching the $15,120 threshold, $1 in benefits will be withheld for every $2 of income above the earnings limit. That means 50% of what you make above $15,120 may be withheld and subject to permanent taxation in 2013. Beware beneficiaries with part-time jobs.
For individuals turning 66 this year, you can earn up to $40,080, and then $1 of benefits will be withheld for every $3 earned above the limit. However, once you turn age 66, the earnings limit no longer applies. And benefits may be recalculated at age 66 to reflect the withheld benefits and continued earnings.
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