The Employee Payroll Tax Holiday Ended in 2013

Although many may not be aware of it, taxes went up for all employees in 2013. Though on the income tax side, only the highest income earners saw their taxes increase. Congress and the President also allowed the payroll tax holiday to expire, resulting in a 2% increase to Social Security taxes.

The payroll tax holiday began in 2010 as a way to stimulate the economy. The idea was to help every worker even those that did not earn enough to pay income taxes, by keeping a little more in their paychecks and circulating that extra money throughout the economy. Whether this tax holiday had its intended affect or not is subject to debate, but one thing is certain is this payroll tax cut was always intended to be temporary.

Regular employees have already felt the effect of the payroll tax holiday expiration with smaller paychecks throughout 2013. Since the money has already been taken out, it will not really impact their tax preparation this year. For small businesses, however, it may be different story.

If you are one of those entrepreneurs that prepares your taxes at the end of the year rather than doing quarterly filings, the end of the payroll tax holiday may give you a little bit of sticker shock this year. Unlike employees, the self-employed are responsible to pay all of their FICA (Social Security and Medicare) taxes. This means that they need to pay 15.3% of their income because there is no 50% employer match.

The payroll tax holiday was a nice break for the self-employed as it gave them a reduction down to a 13.3% FICA tax rate. In addition, for entrepreneurs that pay taxes directly to Uncle Sam and not through an employer, it was a significant reduction in their tax burden at the end of the year.

If you are self-employed and preparing your 2013 taxes, then make allowances for the payroll tax holiday expiration. If you are unsure how this tax change impacts your business, speak to an accounting professional for further guidance. Small businesses are sometimes a target for audits, so it is important to make sure everything is in order come tax time.

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