SOLON, Ohio - Now that the drama surrounding the fiscal cliff has subsided, it’s time to look at your paycheck and notice it’s a bit smaller.
When the ball dropped at Times Square, so did the amount of money in your pay. The Social Security tax went back up to its pre-2011 level of 6.2 percent, a level the tax had been at since 1990.
“I think a lot of people will be surprised’” said Jeffrey P. Cirino, founder and president of Alpha Planning in Solon.
Cirino, who has worked in financial planning 20 years, contemplated what effect the end of the two-year tax cut may bring.
“People that have been especially living paycheck-to-paycheck are going to feel it the most because they’re now going to have 2 percent less of their gross paycheck than they had last month,” he said. “It’s far worse psychologically when you have something and it’s taken away,”
The lower level tax of 4.2 percent was put in place by Congress and the Obama administration as a tool to stimulate the economy, a move that could backfire here in 2013.
People noticing a smaller paycheck may tighten their spending, a move that could hurt a slowly recovering economy.
“We are in such a slow and prolonged recovery since it started in 2008, this is just one more reason for people to want to tighten their belts,” Cirino said.
According to Cirino, the Social Security tax cut in 2011 was the first time it had been cut since 1968, which underscored how bad representatives viewed the financial crisis.
People making more than $400,000 will see a bigger bite from their pay as their tax rate rises to 39.6 percent from 35 percent.
In 2013, the maximum amount of taxable earnings will be $113,700 a rise for the 2012 level of $110,100.
A slight rise in the Medicare tax for some income levels kicks in this year too.
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