Social Security withholding increases
Workers who are getting adjusted to a decrease in their paychecks as health care premiums rise are now noticing another decrease, as the temporary reduction in Social Security withholding expired Jan. 1.
Workers will now see 6.2 percent of their pay taken out, rather than the 4.2 percent that had been taken out in 2011 and 2012.
The “payroll tax holiday” was originally to be effective for just 2011. When the one-year “holiday” was due to expire, legislators opted to extend that tax break an additional year.
Workers then enjoyed the 4.2 withholding tax rate again in 2012, said Internal Revenue Service spokeswoman Jennifer Jenkins.
Calculating how much more you’ll be paying in Social Security taxes this year is simple. Take your salary and multiply it by .02. For example, somebody who makes $30,000 can now expect to pay $600 more this year in social security taxes than last year. To figure how it affects you monthly, divide by 12. That’s how much less you’ll be bringing home each month than you were before, Jenkins said.
“The people who are really hurt are the ones making about $30,000; $600 a year is a big deal to them,” said J. Martin Kooman, president and CEO of Kooman & Associates Inc., Altoona. “When you have the combination of paying more in Social Security, health care and with rising fuel costs, people are between a rock and a hard place.”
Joe Hurd, president and CEO of the Blair County Chamber of Commerce, said the increase makes it more difficult for people to call their job a “family-sustaining job.” He also said people may have fewer incentives to go out and work.
“It becomes too easy to look at alternatives to going out and trying to be enthusiastic about getting a good job and bettering yourself to increase your value as an employee. It is making it harder for people who are trying to be conscientious workers,” Hurd said.
Some people believe the increase in Social Security withholding is not good for the economy.
“Whatever impact there is, it has to be negative. This economy is made up by two-thirds on consumer spending. When you take money out of the consumer’s pocket, it can’t have a positive effect,” said Eric Irwin, co-owner of Irwin Financial, Altoona.
Hurd said it is difficult to speculate how the increase in withholding will affect the local economy.
“It may cause people to be more conservative in how they spend their money. I think a lot of people won’t change their buying habits as much as they change their saving habits,” Hurd said. “They may not put as much into their savings.”
The increase may eat up any cost-of-living pay increases that employees receive.
“When you talk about employers giving employees a cost-of-living increase, they don’t always take into consideration there is additional money coming out of people’s paychecks,” Hurd said.
“Since there is more money coming out, the employee has less money to spend and has less options and the entire economy flutters as a whole as a result of this.”
Irwin said the increase is unavoidable and said if people could afford it, they should continue to put money into retirement plans.
“I always say pay yourself first to the extent you can with your 401(k). I recommend taking 10 percent out of your paycheck,” Irwin said. “People will have to budget with less money coming in the door. For someone who can afford to save money, there are options with the stock market.”
Employees may not notice the decrease in pay immediately, Jenkins said.
Employers are advised to implement the 6.2 percent employee Social Security tax rate as soon as possible, but not later than Feb. 15.
After implementing the new rate, employers should make an adjustment in a subsequent pay period to correct any under withholding of Social Security tax as soon as possible, but not later than March 31, Jenkins said.