SAINT PAUL, Minn. - It has been a week or two of shocks for working Minnesotans. Many are in pay stub shock. As of Jan. 1, the Social Security tax rates returned to their old rate of 6.2 percent. For two years, the rate had been set at a lower 4.2 percent as part of the economic stimulus package at the beginning of President Obama's first term in 2009.
"I do not see how it could be a stimulus when I am minus money," said Patty Carlson of Maple Grove, who is a state government worker in Saint Paul. "I am not going to be spending as much money."
Tax preparer James Serakos of Serakos and Associates in Minneapolis said the phones in his office are ringing off the hook. "We have had a huge amount of people calling asking if their checks are wrong. Why is their check less? Why isn't it the same as it was two weeks ago?"
Serakos said many people have confused the fiscal cliff debate with the long-planned return to the higher Social Security rates.
"In 2009, the American Recovery Act was established and that act gave something called the 'Making Work Pay Tax Credit'. That credit was $400 per individual or $800 per couple," said Serakos. "That expired in 2010. Then, the administration enacted this payroll tax cut, I think to minimize the effect of the Making Work Pay Tax Credit coming off of the tax form...So, everybody was happy for two years. Well, now it is time to go back to reality and the Making Work Pay Credit is gone. The Payroll tax credit (the lower Social Security rate) is gone. It is a big change for all of us."
That reality means a worker making $50,000 per year, will pay about an additional $1,000 per year in Social Security taxes.
Patty Carlson fears that is not the only loss in her paycheck. "What else is going to change?" she wondered. "This is the first of the year. Maybe your health insurance is going to change, union dues, maybe that might start going up. It all adds up in the long run."
In the short run, household budgets will have to tighten to accommodate the lower take home pay.
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