Payroll Tax Holiday/Additional Medicare Tax

In 2012, payroll tax was paid on an employee’s first $110,100 of wages. The payroll tax holiday reduced the employee-share of social security taxes from 6.2 percent to 4.2 percent for calendar year 2012 up to the social security wage base of $110,100, saving employees up to $2,202. If the payroll tax holiday is not extended in 2013, employees will pay 6.2 percent in 2013 compared to 4.2 percent in 2012. In addition, the wage base for 2013 will rise to $113,700. For someone who makes at least $113,700 in 2013, the extra 2 percent payroll tax plus the bump in wage base will result in $2,274 more social security tax paid in 2013 compared to 2012.

In addition, the Affordable Care Act also imposes an additional 0.9 percent Medicare tax on higher-income individuals, effective January 1, 2013. The threshold amounts are: $200,000 for individuals; $250,000 for married couples filing jointly; and $125,000 for married couples filing separately.