What a lost opportunity. One of the taxes that increased as of Jan. 1, 2013 but was NOT included in the “fiscal cliff” deal is the Social Security payroll tax. For the past two years, employees have paid 4.2% in payroll taxes to fund Social Security, down from 6.2%. When you get your first paycheck of 2013, it will be less than your last paycheck of 2012 because your withholding level is reverting to the higher level.
The smart thing to have done with the 2% Social Security payroll tax cut would have been to give each employee the option — let it go back to 6.2% and get your full benefits upon retirement (if you’re guilible enough to believe you’ll get them) or keep paying 4.2% into the system with the other 2% mandated to go into a 401(k) or IRA in exchange for a slightly reduced level of benefits upon retirement. This way no one would have been forced into a private account; the reduction in benefits for people opting for private accounts would help with Social Security’s long-term solvency issues; and no matter which choice you make you would have some sense that your money is not just being sucked out of your pocket because you had some control over the decision.