NEW YORK (MainStreet) — Congress acted just in time, literally, in passing the American Taxpayer Relief Act of 2012. As a result, the Internal Revenue Service has been able to release updated income tax withholding tables for 2013 that will apply to the first paychecks issued in the New Year.
ATRA extended the various tax benefits that had expired Dec. 31 — with one exception. Noticeably missing from the legislation was an extension of the 2% reduction of the employee's share of Social Security Tax withholding and the corresponding reduction in the Self-Employment Tax. This 2% reduction in payroll tax withholding for 2011 and last year was the latest incarnation of George W. Bush's disastrous rebate checks.
So starting Jan. 1, everyone got a 2% cut in pay!
Beginning with the first paycheck of this year, the employee's share of the Social Security tax returns to 6.2% and will apply to wages of up to $113,700, the new maximum Social Security wage base. The Self-Employment Tax will return to 15.3%, with the Social Security component of 12.4% limited to $113,700 of combined maximum W-2 income and net earnings from self-employment.
The maximum Social Security wage base for 2012 was $110,100. So the maximum withholding for Social Security tax increases from $4,624.20 last year to $7,049.40 this year, an increase of 52.45%.