How to Answer Your Employees" Questions on Why Their Paycheck Might Be Lower: The 2% Social Security
How to Answer Your Employees' Questions on Why Their Paycheck Might Be Lower: The 2% Social Security Tax Change
For over a year, employees had a reduction in their Social Security tax from 6.2% to 4.2%. Congress voted for this to give employees extra money in their pocket during the recession.
This tax cut expired 12/31/2012. For all paychecks dated January 1, 2013 and after the new increased tax rate applies.
For all employee taxable wages up to $113,700, the SS rate to employees is now 6.2%.
The IRS has also released 2013 tax tables, and your employee's paychecks may be affected by the change depending on their withholding status. A link to the IRS Changes on Payroll Tax can be found on the IRS website, Notice 1036.
Here is a handy chart to show how the 2% increase will affect your employee's paychecks:
Gross Wage
$100 $2.00
$500 $10.00
$1000 $20.00
$1500 $30.00
$2500 $50.00
$5000 $100.00
$7500 $150.00
The maximum wage on which SS tax will be levied is $113,700 for 2013.
Following, is History of Social Security
1935 - President Roosevelt signed The Social Security Act (SSACT), a measure which covered workers in commerce and industry.
1937 - The Federal Insurance Contribution Act (FICA) was created for to workers to pay taxes to support the system. The rate for Payroll taxes was 2%.
1939 - The ACT was expanded to cover dependents and survivors. The rate for Payroll taxes was 2%.
1950 - Benefit levels were increased, and the coverage was expanded to job outside of commerce and industry. Payroll taxes (PT) were now 3%.
1956 - Disability Insurance was created. Early retirement at age 62 for women was permitted. Payroll taxes were raised to 4%.
1961 - Early retirement at age 62 for men was permitted. Payroll taxes were now 6%.
1972 - Automatic cost-of-living-adjustments (COLAs) were added. These COLAs index benefits to inflation. The formula to calculate increases initially overstated inflation by 25%, and people born between 1910 and 1916 received an unintended overpayment. PT were now 9.2%.
1977 - The mistake in the benefit formula was corrected. PT were now 9.9%.
1983 - The National Commission on Social Security Reform was created in response to the discovery of the actuarial unsoundness of the system. The commission called for 1) and increase in the self-employment tax; 2) partial taxation of benefits to upper income retirees; 3) expansion of coverage to include federal civilian and nonprofit organization employees; and 4) an increase in the retirement age from 65 to 67, to be enacted gradually starting in 2000. Again, the program was declared actuarially sound. PTs were raised to 10.8%.
1985 - The Trust Funds were transferred "off-budget". The funds earmarked for the system could now be tracked apart from the rest of the budget. PTss were 11.4%.
1986 - COLAs were increased to respond to small levels of inflation. PTs were 11.4%.
1993 - The amount of taxable benefits for higher income retirees was increased to 85%. PTs were 12.4%.
1996 - The Social Security Trustees' Report predicted that the system would start to see deficits in 2012, and the trust funds would be depleted by 2029. The members of the Advisory Panel decreed that some or all of Social Security's funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%.
1997 - All members of the presidentially-appointed Advisory Panel agreed that some or all of the programâEUR(TM)s funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%."
1999 - The Trustees' Report reported that the system's unfunded liability increased by $752 billion since the 1998 Trustee Report was published. This brings the total long-term unfunded liability to more than $19 trillion.
For over a year, employees had a reduction in their Social Security tax from 6.2% to 4.2%. Congress voted for this to give employees extra money in their pocket during the recession.
This tax cut expired 12/31/2012. For all paychecks dated January 1, 2013 and after the new increased tax rate applies.
For all employee taxable wages up to $113,700, the SS rate to employees is now 6.2%.
The IRS has also released 2013 tax tables, and your employee's paychecks may be affected by the change depending on their withholding status. A link to the IRS Changes on Payroll Tax can be found on the IRS website, Notice 1036.
Here is a handy chart to show how the 2% increase will affect your employee's paychecks:
Gross Wage
$100 $2.00
$500 $10.00
$1000 $20.00
$1500 $30.00
$2500 $50.00
$5000 $100.00
$7500 $150.00
The maximum wage on which SS tax will be levied is $113,700 for 2013.
Following, is History of Social Security
1935 - President Roosevelt signed The Social Security Act (SSACT), a measure which covered workers in commerce and industry.
1937 - The Federal Insurance Contribution Act (FICA) was created for to workers to pay taxes to support the system. The rate for Payroll taxes was 2%.
1939 - The ACT was expanded to cover dependents and survivors. The rate for Payroll taxes was 2%.
1950 - Benefit levels were increased, and the coverage was expanded to job outside of commerce and industry. Payroll taxes (PT) were now 3%.
1956 - Disability Insurance was created. Early retirement at age 62 for women was permitted. Payroll taxes were raised to 4%.
1961 - Early retirement at age 62 for men was permitted. Payroll taxes were now 6%.
1972 - Automatic cost-of-living-adjustments (COLAs) were added. These COLAs index benefits to inflation. The formula to calculate increases initially overstated inflation by 25%, and people born between 1910 and 1916 received an unintended overpayment. PT were now 9.2%.
1977 - The mistake in the benefit formula was corrected. PT were now 9.9%.
1983 - The National Commission on Social Security Reform was created in response to the discovery of the actuarial unsoundness of the system. The commission called for 1) and increase in the self-employment tax; 2) partial taxation of benefits to upper income retirees; 3) expansion of coverage to include federal civilian and nonprofit organization employees; and 4) an increase in the retirement age from 65 to 67, to be enacted gradually starting in 2000. Again, the program was declared actuarially sound. PTs were raised to 10.8%.
1985 - The Trust Funds were transferred "off-budget". The funds earmarked for the system could now be tracked apart from the rest of the budget. PTss were 11.4%.
1986 - COLAs were increased to respond to small levels of inflation. PTs were 11.4%.
1993 - The amount of taxable benefits for higher income retirees was increased to 85%. PTs were 12.4%.
1996 - The Social Security Trustees' Report predicted that the system would start to see deficits in 2012, and the trust funds would be depleted by 2029. The members of the Advisory Panel decreed that some or all of Social Security's funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%.
1997 - All members of the presidentially-appointed Advisory Panel agreed that some or all of the programâEUR(TM)s funds should be invested in the private sector. To keep the unchanged system actuarially sound, payroll taxes would have to be increased 50%, to 18% of payroll, or benefits would have to be slashed by 30%."
1999 - The Trustees' Report reported that the system's unfunded liability increased by $752 billion since the 1998 Trustee Report was published. This brings the total long-term unfunded liability to more than $19 trillion.