The December holidays are over, and as of January 1, the so-called “payroll tax holiday” has come to an end as well.
The American Taxpayer Relief Act of 2012, also known as the fiscal cliff legislation, means individual workers will pay higher federal taxes this year as the Social Security tax withholding rate returns to 6.2 percent from 4.2 percent, according to a recent Weaver eNewsletter article.
But there is some good news.
- The new law does not include income tax increases that would have compounded the impact of the increased Social Security tax withholding rate.
- It also makes several tax breaks more permanent, such as favorable gift and estate tax rules and larger child tax credits.
However, the news isn’t as good for individuals earning more than $400,000 and married couples earning more than $450,000.
- Higher-income individuals face higher tax rates – up to 39.6 percent – on ordinary income.
- They will also pay a new 3.8 percent Medicare surtax on net investment income.
- A 0.9 percent Medicare tax will be assessed on wages and self-employment income.
To see how this legislation will have an impact on businesses as well, contact us.