Jan 17 Paycheck a little lighter this month?
Despite the extension of the payroll tax cut, taxes are still
taking a bigger slice of many workers' pay in 2012. And 2013
could be even worse.
Thanks to little-known factors such as lower transit and
childcare benefits, some workers can expect to have their net
pay decrease by several hundred dollars this year as new
federal regulations rolled out January 1.
"Unless a company is willing to bump up salaries to offset
it, taking away a tax advantage or [fringe] benefit will always
impact employees at the margins," says Steve Wojcik, vice
president for public policy at the National Business Group on
Health, a coalition of 325 large employers. "That's probably
what many workers are feeling right now."
PRE-TAX PUBLIC TRANSIT ALLOWANCE DROP
Carrie Hughes, who commutes three hours roundtrip from New
York City to her office in Princeton, New Jersey, is feeling
the pinch. In 2011, Hughes was eligible for a pre-tax public
transit payroll deduction of $230 per month. This year failure
by Congress to renew that credit let the allowance drop to
$125, while those who commute by car can still put aside
"Congress is incentivizing commuters to hit the road, take
their car to work," says Bruce Elliott, manager of compensation
and benefits at the Society of Human Resource Management. "And
if you don't have a car, this is going to cost you a lot of
Hughes already paid $5,496 annually for her train pass in
2011, but with the lower pre-tax deduction this year, commuters
with incomes of $50,000 or more may pay an additional $400 in
BACK-UP CHILDCARE BENEFITS NOW TAXES
Several companies are also for the first time this year
reporting emergency back-up childcare's "fair market value" as
taxable income to the IRS. This change, in some cases, may be
due to economic circumstances, but another impetus is likely
the phasing out by year's end of a 25 percent tax credit (up to
This credit was given to businesses for qualified childcare
expenses and enacted by the Bush Administration tax cuts in
2001. So, while employers may have once picked up the tab on
such benefits, they are now passing along the tax burden -
which can be as much as $50 every time the back-up service is
used - to employees.
Employees, however, may be able to offset at least some of
these new taxes. Families, depending on their income, can claim
up to $3,000 per year in dependent care expenses for one child
or dependent, and $6,000 for two, on federal income tax forms.
Or, working parents can arrange with their employer to exclude
up to $5,000 from their salary pre-tax for childcare
Which option is more favorable - and whether
employer-provider childcare qualifies - varies. "It depends on
income, the number of children and what other expenses a family
may have," says Eric Namee, a tax accountant based in Wichita,
Kansas, who specializes in employee benefits. "With many
complicated calculations, it is best to speak to a tax
Either way, employers may soon find the new tax burden of
the emergency childcare option will result in increased
absenteeism among staff that used the benefit when it was
tax-free. A 2007 survey by the firm Workplace Options found
that 59 percent of employees or their spouses missed three to
10 days of work in the last year due to a lack of adequate
back-up child or elder care.
"It's really not an added benefit anymore," says Alex
Abrahms, a father of two who works for a large New York City
financial firm, which began adding the cost of back-up child
care to employees' paychecks as income January 1. "I'll
probably just take a sick day going forward."
Parents in specific states may see other tax credits
disappearing in 2012. In Oklahoma, for instance, a state task
force on tax reform has recommended the elimination of 47
separate tax breaks, including the state's childcare income tax
credit that was claimed on some 362,000 returns in 2010.
"Our young families need that the most," Kathy Cronemiller,
president of the Oklahoma Child Care Association told newspaper
The Oklahoman. "It's almost like we're setting them up to fail
if we don't help them with the childcare tax credit."
LOWER FLEXIBLE SPENDING ACCOUNT LIMITS IN 2013
Flexible spending account limits aren't changing in 2012 -
with no government-mandated limit currently in place, most
companies allow employees to set aside as much as $5,000 per
year. New federal regulations, however, will set a cap at
$2,500 in 2013. So employees putting away funds for a costly
elective medical procedure not covered by insurance should be
sure to schedule it before December 31.
Indeed, 2013 could bring many more unexpected changes for
middle-class taxpayers. The personal exemption, which allows
all taxpayers to reduce their taxable income by $3,750, is set
to expire. And several tax credits that were part of the Obama
Administration's economic stimulus will also disappear. For
example, the child tax credit will shrink from $1,000 per child
to $500, and the higher income limits to qualify for the Earned
Income Tax Credit will end.
Of course, it is still possible that Congress could act to
restore many, if not all, of these expiring tax breaks. Whether
that will happen remains unclear, but as Wojcik puts it, "You'd
hope in this economic climate, Congress would be doing
everything in its power to help workers and their families, not
make things more difficult."
In the meantime, workers impacted like Hughes and Abrahms
are left with few options. "I have a job I like in New Jersey,
a partner in New York, and an economy that isn't bursting with
other great jobs," Hughes says. "So I'm not even going to
figure out how much I lose in this, but just seethe quietly."
The author is a Reuters contributor. The opinions expressed
are her own.
(Editing by Jilian Mincer and Beth Pinsker Gladstone)