How You Received a Paycut This Year
There have been many articles written about the recent fiscal cliff tax increases being averted for all but the “wealthiest” Americans (“Wealthiest” is considered $200k+ individuals and $250k+ for families). However, what is being swept under the rug is the fact that 77% of middle income Americans ARE seeing a tax increase.
Why the discrepancy? While income taxes are only increasing for those making $200k or more, payroll taxes are increasing 2%. The Tax Policy Center published a report finding that 77 percent of American households will see an increase in their federal tax burden after higher payroll taxes are factored in. Households making $50,000 will see almost $85/month or $1000/year less in their pay checks. There are limited ways to reduce payroll taxes, such as maximizing 401k contributions. However, many tax payers are using retirement income planning strategies to reduce other forms of taxes (income tax, taxable interest and dividend income) by using annuities and life insurance.