Where did 2% of Your Income go?
So I keep seeing articles and reports on how the payroll tax has been hiked by 2%, and I wonder why it is being reported as such, because it isn't a tax hike, it is a return to the rate that we had before. The rate for payroll taxes has been 6.2 % for many years, since 1990. The decrease to 4.2% was a temporary measure for 2011 and 2012. The administration in an effort to increase workers take home pay, during a weak economy, reduced the payroll tax by 2%, so instead of those funds going towards social security which is where they normally go, they came home with you. So now that those funds are being re-directed towards social security, folks are labeling this as a tax increase, but it really isn't. Before the temporary decrease, you didn't have access to those funds anyway, they went to social security. Anyone who calls this a tax increase has not been paying attention, and obviously didn't know what the rates were before, or where the money went.
6.2% of your income up to $110,000 goes towards Social Security.
1.45% of your income goes towards Medicare, for a total of 7.65%
It is interesting to note, that when the payroll tax was first reduced, folks said that the reduction amount was so small it was barely noticeable, now that the funds are being returned to the social security pool, this same negligible 2% has suddenly become a massive hit on everyone's wallet. Don't get me wrong, in an economy, and especially one held up by string, any change that reduces your spending power is worth being concerned about, but let's refer to the changes by what they really are, the end of a temporary cash flow reprieve and not as a tax-hike.
"No matter who you are, making informed decisions about what you do with your money, will help build a more stable financial future for you and your family." Alan Greenspan