Social Security Payroll Tax Increase Calculation

Although the final fiscal cliff deal saved middle-class Americans from massive tax increases, it does not mean that  they will be completely exempt from a tax increase in 2013.

The fiscal cliff legislation failed to prevent the Social Security payroll tax cut  from expiring.  Social Security is funded by a 12.4 percent payroll tax charge that was shared between employees and employers. The share of the  Social Security payroll tax for employees was originally 4.2%, a 2% reduction that was imposed by President Obama over the past two years.    Thus, employees originally benefited from a minority share of the payroll tax charge while employers paid the latter.

With the expiration of the payroll tax cut for employees, the 2% reduction has been wiped out.  Employees that make up to $113,700 will now have to pay an increased share of 6.2%.

Therefore, I have created an Excel spreadsheet that calculates the overall annual tax increase as well as the tax increase per pay-period for an individual.    When you download and access the spreadsheet, all one would have to  input is their annual income and the number of pay periods per year based on his or her payment frequency. (weekly, biweekly, monthly, or semi-monthly)

By knowing the potential tax increase that will arise from the payroll tax cut expiration, one can anticipate the tax increase ahead of time and shift their household budget or expenses accordingly.  Hopefully, this spreadsheet will lead to fewer individuals being blindsided by a sudden dip in their take-home pay.

The spreadsheet can be downloaded here:   Payroll Tax Increase Calculation