Everyone by now has probably noticed that their paychecks are a little slimmer than they were at the beginning of last year; 2% lower, to be precise, due to Congress not extending the temporary reduction of the Social Security payroll tax. But that’s only the widely known tax change and the one with the broadest impact; lots of other minor changes have affected the tax code as well.

The “Bush Tax Cuts” (EGTRRA and JGTRRA) expired at the end of 2012, and the new top marginal rate of 39.6% went into effect for those making more than $400,000 singly or $450,000 jointly. That was the most controversial of the tax changes but in reality, the actual monetary difference is slim. For example, in 2012, a married family making half a million dollars paid:

 

10% on the first $17,400 ($1,740)

15% on the next $53,300 ($7,995)

25% on the next $72,000 ($18,000)

28% on the next $74,750 ($20,930)

33% on the next $170,900 ($56,937)

35% on the remaining $111,650 ($39.077.50)

…For a total of $144,679.5 in taxes.

 

In 2013, the same family will pay:

10% on the first $17,850 ($1,785)

15% on the next $54,650 ($8,197.50)

25% on the next $73,900 ($18,475)

28% on the next $76,650 ($21,462)

33% on the next $175,300 ($57,849)

35% on the next $51,650 ($18,077.50)

39.6% on the remaining $50,000 ($19,800)

…For a total of $145,646 in taxes — just $966.50 more than in 2013.

 

Now, as the income goes up from half a million, the difference increases more and more but the simple fact is that less than half a percent of us will experience even this less-than-thousand-dollar difference in taxes. In short, the revocation of the Bush Tax Cuts will have minimal impact in 2013. Now, the other changes in the tax code, like the extension of some parts of the Earned Income Tax Credit to 2018 are a very different story…

Please contact us and one of our expert accountants will explain how these changes will affect your payroll taxes and answer all of your questions.