Fiscal Cliff Hits Paychecks With Payroll Tax Hike
Everyone’s paycheck is about to take a hit, and it’s not the boss’ fault. But some business owners say it’s a tough talk to have.
The rate of workers’ payroll taxes, which fund Social Security, has been 4.2% for the past two years. As of Jan. 1, it’s back to 6.2%, on the first $113,700 in wages.
That forced Mike Brey, who owns four Hobby Works shops near Washington, D.C., to notify his store managers about the upcoming change during a conference call Monday. He called the experience uncomfortable. “These are the people who can least afford it,” Brey said.
Brey said he can’t raise compensation to ease the pain. Enduring the recession meant cutting his own salary, firing workers, taking on half a million dollars in debt and raiding his own 401(k).
“Any business that survived the recession did so by digging a big hole,” Brey said. “We can’t dig any deeper.”
Related: How the rich will pay more in 2013
Payroll taxes are key for financing Social Security, and the break of the past two years has forced the government to replenish the funds with borrowed money. The tax break was always meant to be temporary.
Workers earning the national average salary of $41,000 will receive $32 less on every biweekly paycheck. The higher the salary (up to $113,700), the bigger the bite, but business owners say their lower wage employees will feel it most.