What the fiscal cliff means for Healthcare and your first paycheck. The house of representative voted 257-167 on a bill aimed to prevent the fiscal cliff that we all have been hearing about for months now. Overall the plan will maintain the bush tax cuts for individuals making less than $450K a year, and the rest which have now been termed “the top 1%” will see the tax cuts expire and will now pay pre-Bush tax rates. At the end of the day, the question that get asked is how does this effect me, and my family?
As you get ready for your first paycheck in 2013 you will see a reduced paycheck, what impacts did the fiscal cliff deal have on your paycheck?
Increased Medicare Tax and the Fiscal Cliff
Starting in 2013 any taxable Medicare wage greater than $200K, will be subject to an additional 0.9% This encompasses couples filling jointly making 250K or more, couples filing separate making $125K and individuals making $200K or more. This 0.9% is in addition to the current 1.45% for individual and the 2.9% on self-employed individuals. The good news is that employers will not be responsible for paying extra, but individual employees will. Broken down in laymen terms. Anyone making above the threshold listed above will pay extra so anyone who makes more than the above will go from paying 1.45 % to 2.35 % and individuals that are self employed will go from 2.9% to 3.8%
Increased Social Security Base Wage and the Fiscal Cliff
Moving forward in 2013, the base wage for Social Security has increased to $113,700 this is a $3600 increase from last year. In 2012 the wage base was $110,100. What does this mean in laymen terms? Look at your paycheck and one of the things you may see is (OASDI) this stands for Old Age Survivors and Disability Insurance = Social Security Tax. If you do not see OASDI, you may see FICA (Federal Insurance Contribution Act), which is made up of a combination of the Social Security Tax and the Medicare Tax. The Social Security wage base refers to the max earned gross income that the social security tax can be imposed on. Moving forward if you make over $110,100K you will pay social security tax on that earning up to $113,700 dollars.
Increased Social Security Tax rate and the Fiscal Cliff
Moving forward in 2013 the social security tax rate for employees will increase to 6.2% from 4.2%. So if you are not one of the individual listed above making between 110-113K your paycheck will still be effected, as you will have to pay an additional 2% of your wages to Social Security. If you make $50,000 a year in 2012, you previous contribution was 4.2% to social security resulting in $2,100. In 2013 you will be paying a 6.2% social security tax rate which would equal $3,100. Here is a link from the IRS explaining the details.
Please share your views on how these changes will effect you and your family?