Paychecks to be smaller in 2013
by William G. Lako Jr.
Business Columnist
January 11, 2013 12:00 AM | 3028 views | 0 0 comments | 28 28 recommendations | email to a friend | print
William G. Lako Jr.<br>Business Columnist
William G. Lako Jr.
Business Columnist
If you haven’t already felt the pinch of higher taxes, you will as soon as you look at your paycheck. You will see the employee portion of your Social Security tax reverted to 6.2 percent. Originally part of the Tax Relief Act of 2010, the payroll tax cut decreased the employee portion of Social Security tax from 6.2 percent to 4.2 percent. This “tax holiday” was in place for 2011 and later extended through the end of 2012. As of December 31, 2012, the 2 percent payroll tax cut expired, and was not extended by The American Taxpayer Relief Act of 2012. This 2 percent increase will affect most employees and the self-employed up to the maximum amount of wages.

Additionally, the Social Security wage base increases to $113,700, meaning the maximum Social Security tax an employee will pay in 2013 is $7,049.40 — an increase of $2,425.20 more than in 2012. The maximum employer’s portion for 2013 has been increased by $223.20. In average salary numbers, a person earning wages of $50,000 will pay $1,000 more in Social Security taxes in 2013 than he paid in 2012.

While paychecks likely decreased for those working, provisions in the Tax Act of 2012 help seniors decrease their adjusted gross income. The Act extended the provision for IRA distributions to charity through 2013. Individuals 70½ or older may make a tax-free distribution, up to $100,000, from an individual retirement account directly to a qualified charity. The distribution is not taxable, and the contribution is not tax-deductible — an important benefit for those who do not itemize or otherwise would not be able to fully utilize the deduction. The contribution also satisfies the annual minimum distribution requirement.

If you missed taking your required minimum distribution for 2012, seniors are allowed to treat charitable IRA donations they make through the end of January 2013 as if they made it in 2012. The January grace period allows you to avoid penalties as long as your custodian directs the money to a qualified charity. This also allows you to give up to $100,000 to charity for 2012, and another $100,000 in 2013.

Moreover, if you made a required minimum distribution in December 2012, it can be considered a charitable distribution if the cash (i.e., not appreciated stock) is transferred to a charity before February 1, 2013.

The new legislation extended some tax credits for businesses as well. In an effort to encourage the hiring of individuals in targeted demographics, who have faced considerable difficulty gaining employment, The American Taxpayer Relief Act of 2012 extended the work opportunity tax credit through 2013. Employers are eligible to claim a credit that ranges from $2,400 to $9,600 for hiring qualified veterans in certain targeted groups. Additionally, nonprofit employers won’t miss out on this credit, as the work opportunity tax credit for hiring qualified veterans is available against Social Security taxes for tax-exempt employers. Businesses may also qualify for a credit equal to 40 percent of the first $6,000 in wages paid to an individual in eight other targeted groups, which include families receiving benefits under the Temporary Assistance to Needy Families program, qualified food and nutrition recipients, and long-term family assistance recipients.

William G. Lako Jr., CFP, is an executive in residence at Kennesaw State University’s Coles College of Business and a principal at Henssler Financial. Lako is a certified financial planner.The MDJ will periodically publish columns from KSU business faculty.
Comments-icon Post a Comment
No Comments Yet
*We welcome your comments on the stories and issues of the day and seek to provide a forum for the community to voice opinions. All comments are subject to moderator approval before being made visible on the website but are not edited. The use of profanity, obscene and vulgar language, hate speech, and racial slurs is strictly prohibited. Advertisements, promotions, and spam will also be rejected. Please read our terms of service for full guides