Smaller Paychecks in the Sunshine State
One tax incentive not extended by the American Taxpayer Relief Act of 2012 was the Payroll Tax Holiday, commonly referred to as the “Payroll Tax Cut(s).” The Payroll Tax Holiday was part of the Tax Relief Act of 2010, which reduced the total percentage of Social Security tax on earnings to 10.4%. For employees, 4.2% of the total percentage came directly from their earnings, while the employer paid the remaining 6.2%.
Although the amount paid by the employer will remain at 6.2%, the employees’ portion of the tax will rise by two percentage points to match. So instead of having 4.2% of their earnings withheld for Social Security tax, employees will now have 6.2% withheld to meet the now [and again] 12.4% total. Since this payroll tax is a federal tax, Florida residents are not immune from this reduction in their paychecks.
End of Vacation, even in Florida
The 2% increase beginning in 2013 is not a tax increase, per se, but rather the expiration of a “tax holiday,” and a reversion to the prior rates. The tax holiday was created by the Tax Relief Act of 2010 and was set to expire after one year. However two subsequent acts extended the cut – each for one additional year:
- The Temporary Payroll Tax Cut Continuation Act of 2011, and
- The Middle Class Tax Relief and Job Creation Act of 2012,
giving employees a vacation from their usual tax withholding. Therefore the exclusion of the tax holiday’s extension from the American Taxpayer Relief Act of 2012 (passed in January 2013) is not a tax increase, but rather the end of a vacation – and back to work as usual.