In December, Congress enacted a 2 percent tax-cut extension for contributions to Social Security for workers with annual salaries up to $106,800. Congress is hoping this tax cut will strengthen the economy.
The tax cut has resulted in additional take-home pay for many Americans, though the amount per check is relatively miniscule. Some Americans note they will be either spending or saving the money: either putting it toward their debt or using it for their day-to-day necessities.
Workers do not need to make any changes to their tax forms, as the tax cut is handled by employers. It should also be noted that the tax cut does not affect employer contributions to Social Security.
The IRS notes that these changes should all be in effect by January 31st. However, employers have until March 31st to make any adjustments for overwithholding. The IRS adds that all though these changes are automatic, workers should still examine their federal tax withholdings every year; as changes may be necessary for lifestyle changes such as children, marriage, buying a new home or divorce.
Furthermore, though the Social Security Administration claims that this temporary drop in income will not affect the system, many Americans are doubting that. Some consequences of the tax cut may include a delay in age where benefits can be received or a lower monthly benefit for future beneficiaries.
Thus, financial advisors across the board recommend that Americans begin thinking more seriously about their financial future, as Social Security benefits may not be very dependable.