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Payroll Changes
Wednesday, January 09, 2013

For those of you who have received a paycheck this year, you may have noticed the amount you received is somewhat smaller than what you expected.  This is due to several changes in the law which either were legislated into effect with the American Taxpayer Relief Act of 2012 (ATRA - signed by President Obama on January 2, 2013) or tax cuts which were allowed to expire.  The following is a brief summary of the most significant of those changes and how they will affect your paycheck going forward:

  1. Employee social security tax rate - increased from 4.2% to 6.2%.  This is the biggest change and is a $1,000 increase in taxes for the average family making $50,000 per year.
  2. Employee Medicare tax rate - increased by 0.9% on all wages above $200,000 ($250,000 for married filing jointly).  However, employers must withhold this additional Medicare Tax from all workers, regardless of marital status, on wages exceeding $200,000.  Therefore, the total employee Medicare tax rate at these thresholds is now 2.35%.
  3. The American Taxpayer Relief Act effectively maintains income tax rates at the same level for individuals earning up to $400,000 and families earning less than $450,000.  Income above those levels will be taxed at 39.6%, up from 35%. 
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