By Ling-Mei Wong
2013 averted the “fiscal cliff” on Jan. 2, continuing many tax relief programs for workers and college students. However, the payroll tax holiday for Social Security and Medicare was not extended, bringing 2013 tax rates back up to 2010 levels of 6.2 percent from 4.2 percent.
“The end of the tax holiday means people will have more money for Social Security when they retire,” said Melody Tsang, Multi-Service Center coordinator at the Asian American Civic Association.
Social Security and Medicare are collectively referred to as Federal Insurance Contributions Act taxes, which are paid by workers who earn more than $600 a year. FICA tax is 15.3 percent of income, half of which is paid by the worker and the other half paid by the employer. An employee would pay 6.2 percent for Social Security and 1.45 percent for Medicare for 7.65 percent, which is matched by the employer for the total 15.3 percent.
President Barack Obama reduced the Social Security tax by 2 percent, or 4.2 percent, for employees in 2011 and 2012 to stimulate the economy.
The Social Security tax rate applies for workers up to the $113,700 taxable wage limit. If someone earns more than that, they only pay 6.2 percent of $113,700, which is $7,049.40.
Obama approved a tax refund for up to $400 in 2009 and 2010 called the Making Work Pay Credit. In 2008, former President George Bush passed the Economic Stimulus Act, which included tax rebates of at least $300 and up to $600.
“There are advantages to each approach,” Tsang said. “The Bush program gave out rebates to all Americans, while the Obama program only awards a tax break to people who worked.”
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