Payroll tax reduction expired, set to increase

January 1, 2013 5:25:55 PM PST
Much of the emphasis during the fiscal cliff talks in Washington has been on income levels and which groups will pay more to the IRS this coming year. But there is another set of taxes that everyone will see go up unless there's a last-minute change in the negotiations.

This reduction in payroll taxes was passed in 2010 as a temporary measure to stimulate the economy. It's now expired, and amid all the negotiations in Washington, neither side appears interested in reviving something that affects pretty much everybody.

"Everybody's going to pay more taxes," chef Louie Alamares said. "That's the reality of it you know." Alamares is none too pleased about the impact the new year will likely have on his paycheck, "That's extra money that's not gonna to end up in my pocket. It's going to end up with Uncle Sam and right now Uncle Sam is not really efficient the way they handle our money, you know."

As it stands now, the 2013 social security payroll tax will go back up two percent from the 4.2 percent of the past two years to 6.2 percent. That means a person with a gross income of $50,000 will pay $1,000 more than they did last year.

"I do know it's going to affect me," Concord resident Catrina Christian said. "I've been trying to save up to buy a house, so looking at how much it will probably be going up, I don't know if I'll be able to afford a house as soon as I want to."

IT technician Jim Concepcion adds, "It's gonna to be tough. I mean, as it is, we're scraping by. It's basically paycheck to paycheck and this is just going to make it tougher for us."

The tax would apply to income up to $110,100, meaning the social security payroll tax maxes out at $2,202.

While some worry about less take home pay, others told us they don't mind so much, given where the money goes.

"I don't promote higher taxes, I promote lower taxes," Concord resident Scott Ferreira said. "But if it has to happen, and the community gets something out of it then we'll be okay."

While the payroll tax increase is expected to pump as much as $125 billion back into the federal budget, economists warn that we should expect a similar reduction in consumer spending.