Many working-class people in the CNMI will now have less take-home pay as the Social Security tax rate for employees is back to the historical level 6.2 percent per payroll this month because the temporary 2-percent tax cut was not extended beyond Dec. 31. The previous employee tax rate for Social Security was 4.2 percent as part of a tax holiday meant to stimulate the economy by giving workers more take-home pay.
For employees earning the CNMI's minimum wage of $5.55 an hour, this 2 percent is equivalent to $8.88 per payroll if they are working 80 hours biweekly.
This means $8.88 per payroll or $17.76 a month that should have gone to buying food items, gas for car, or children's school needs, will go toward taxes.
“We could have also used that 2 percent to help pay for our utility bills,” a government employee told Saipan Tribune yesterday. The mother of six from Dandan said her household can still manage even with the end of the 2 percent tax holiday but she said she feels sorry for those who have just started paying Social Security and those earning much less.
A father of three, also from Dandan, separately said while there's less take-home pay starting this month, that amount will still come back to taxpayers like him when he starts receiving Social Security benefits.
“It will still be there for you in the long-run; after all, it was meant to be temporary relief,” he said.
Employers' share for Social Security has remained at 6.2 percent.
The Internal revenue Service under the U.S. Department of the Treasury said in a notice that employers should implement the 6.2 percent employee social security tax rate “as soon as possible, but not later than Feb. 15, 2013.”
“After implementing the new 6.2-percent rate, employers should make an adjustment in a subsequent pay period to correct any under-withholding of social security tax as soon as possible, but not later than March 31, 2013,” IRS said in its January 2013 Notice 1036.
Social Security and Medicare are covered by the Federal Insurance Contribution Act, or FICA, taxes that are deducted from the payroll of working-class people.
Employers are required to withhold Social Security taxes from wages paid to an employee during the year and must also match the tax withheld from the employee's wages.
The employer FICA tax rate remains at 7.65 percent, a combination of a 6.2 percent Social Security tax and a 1.45 percent Medicare tax, said private firm Ernst & Young in its 2013 annual letter of taxation developments affecting business on CNMI.
In addition, the Social Security wage base limit increases to $113,700 for 2013.
Delegate Gregorio Kilili C. Sablan (Ind-MP) said in his latest newsletter confirmed that the Social Security rate went up from 4.2 percent to 6.2 percent.
He said the U.S. Congress authorized a reduced 4.2 percent Social Security contribution rate for employees in December 2010 in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act or P.L. 111-312.
“The reduction was a response to the recession and intended to stimulate the economy by giving workers more take-home pay. The reduction was extended by the Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78) and again, through the end of 2012, by the Middle Class Tax Relief and Job Creation Act (P.L. 112-96),” he said.
But because no further extension has been enacted, the Social Security contribution rolls back to 6.2 percent effective Jan. 1, 2013.
“While the temporary reduction may have had a positive impact on the economy, it also meant that U.S. taxpayers will have to replace $224 billion in lost revenue to the Social Security trust fund,” he added.
Some Filipino workers under the Commonwealth-only worker program expressed relief that they are no longer required to pay FICA at least until the end of the transitional period on Dec. 31, 2014, so they would continue to have more take-home pay than they had when they were required to pay these federal taxes beginning in late 2011.