Tell Your Employees Paychecks May be UGLY


Social security taxes are increasing on January 1 and other tax rates may change as well.

According to an article in the Washington Post because the “fiscal cliff” debate is going on still employers will not have time to make adjustments to paychecks in January if tax rates change. So you need to tell you employees now that paychecks may be ugly.
One sure change
One thing that is certain is that Social Security tax is going back to 7.65% up from 4.2% in 2012. The employer portion also returns to 7.65% from 6.2%. So that is going to bite into take-home pay immediately. My guess is that most employees have missed that news.
Fiscal cliff slows the IRS
Because the tax situation has not been resolved by Congress and the Obama administration the IRS has not published the 2013 withholding rates yet. So taxes, whatever they are going to be, are not going to be withheld correctly. This means that employers are going to have to withhold more later in the year to insure that the proper amount of taxes are withheld to avoid creating tax bills for their employees.
According to the Washington Post article:
A taxpayer making between $50,000 and $75,000 would get an average tax increase of $2,400, according to the Tax Policy Center, a Washington research group. If the worker is paid every two weeks, that’s about $92 a paycheck, on average.
Someone making between $75,000 and $100,000 would get a tax increase averaging nearly $3,700. If the worker is paid every two weeks, that’s about $142 a paycheck.
Adjustments could be tough
Companies that use payroll administration companies will adjust the quickest and small companies that do their own payroll will most likely be the slowest to adjust.
Adjustments for employees may be difficult too. Many Americans live paycheck to paycheck and having an extra $50 or $90 or $150 taken out every paycheck may make life difficult.
Communicate to your employees
You need to let your employees know this stuff NOW. Be a responsible employer and let your employees know so they can plan. If you don’t they are going to be unhappy and they will be coming to you for explanations when these increased taxes hit. Unfortunately telling them it is the fault of the politicians will not be helpful.

1 thought on “Tell Your Employees Paychecks May be UGLY”

  1. The beauty of the tax cut is that is shows up in weekly paychecks, giving workers more money to spend or save. The downside is that some workers may not have noticed a $19-a-week increase in pay, making them unlikely to credit the politicians who made it happen.

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