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Smart Benefits: More Taxes, Less Pay

Monday, January 21, 2013

 

Rhode Island employees may be shocked this month to see their paychecks go down. Here's why, and why more reductions may be in store.

Congress may want us to believe that only the rich will pay more in taxes this year, but that’s not necessarily true. For many employees, January was not only the beginning of a new year, but also the start of an unpleasant surprise in their paychecks: less pay!

2% Payroll Tax Adds Up

Employees and small business owners are feeling the effects of the 2 percent increase in the payroll tax. On an income of 100,000, that's $2,000 more in taxes.

The payroll tax was temporarily reduced from 6.2 to 4.2 percent in 2011. For those workers who got used to having the extra money to cover increases in food, gas and everything else, the reduction in take-home pay is sure to be felt.

Income-Dependent Taxes

More tax hikes will be felt in some workers’ wallets as well:

  • Income Tax Rate: While the income tax rates for many individuals remain the same for 2013, the rates for those with taxable income over $400,000 ($450,000 for a married couple on a joint return) will increase to 39 percent.

  • Medicare Tax: The Medicare tax will increase by .9 percent for the self-employed and individuals making 200,000 (250,000 for married filing jointly)

Rising Health Insurance Costs Add to Employee Burden

The timing of the tax changes couldn’t be worse. Most employees also started the New Year with new benefit packages – and that likely means higher premiums and deductibles and/or lesser coverage.

Previously, when employees faced higher out-of-pocket costs, they could contribute more to a flexible spending account to pay for those benefits on a pre-tax basis. But the IRS capped FSA contributions to $2,500 for 2013.

While we may have avoided the fiscal cliff, many employees and small business owners feel they are at the bottom of a canyon with the walls closing in around them. And most aren’t “rich.”

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

 

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