Feds see paychecks shrink with payroll tax hike

Federal employees will see less money in their first 2013 paycheck because of the end of the payroll tax holiday.

The payroll tax holiday officially expired on Jan.1, and Congress did not renew it as part of the final compromise on the fiscal cliff. The government reduced the payroll tax funding Social Security for individuals from a rate of 6.2 percent to 4.2 percent in 2010 and 2011 to help stimulate the economy. For individuals, the rate has now reverted to 6.2 percent of annual wages up to $113,700, which means most Americans will see their paychecks shrink this year. Employers and individuals each pay 6.2 percent, with the combined 12.4 percent going to finance Social Security.

Feds will see less money for the wages they receive for the pay period ending Dec. 29, 2012. The official pay date for that pay period is Jan. 4.

The change could come as a surprise to some feds who were expecting to see the increase later this month. Individuals earning $50,000 per year will see their monthly paycheck decrease by $83 and will take home $996 less annually. Those earning $100,000 annually will see $167 less in their monthly pay, and $2,004 less for the year.

Federal civilian employees can find the change on their leave and earnings statement under the OASDI (Old Age, Survivors, and Disability Insurance) category. Military personnel should look under the FICA (Federal Insurance Contributions Act) category for Social Security withholdings.

Increases in allowances, pay raises and promotions could affect service members’ net pay, according to a Jan. 4 report from the American Forces Press Service. “Service members could see an increase in net pay or a decrease,” military personnel and readiness officials told AFPS. Active duty personnel will see adjustments in their mid-January paycheck, AFPS reported.

For civilian employees, the change likely means less money overall, particularly in light of the continued pay freeze. President Obama issued an executive order lifting the pay freeze on March 27, but there’s no guarantee Congress will let that happen.