As students return back to work after winter break, many may be surprised to see their first paycheck of 2013 is slightly smaller.
On Jan. 1, Congress passed the Taxpayer Relief Act, which will increase Social Security taxes by 2 percent. President Barack Obama signed the act into law the following day.
The measure — the result of months of debate over how to prevent higher taxes on the middle class — will bring the Social Security tax rate back to where it was in 2010.
While the increase back to 6.2 percent for Social Security has been on the horizon for the past two years, the tax raise catches some students, who have become accustomed to the lower tax rate, off guard.
“Living paycheck to paycheck, I don’t think we will really notice, but over time if you go back and add it up, it is a bigger impact,” speech-language-hearing sciences junior Kristi Schulz said.
Though all Americans will be paying slightly more taxes in 2013, the Taxpayer Relief Act reinstates many tax breaks that Americans have seen in past years. It also increases taxes for individuals making $400,000 or more annually.
The 2 percent increase may not impact students immediately in 2013.
All employers must withhold correct 2013 rates by Feb. 15. Employees who received checks with the 2012 Social Security tax rate will need to have extra taxes withheld from their checks by the last day of March to make up for under-deducted taxes.
While this additional amount may not have a large impact on individual checks, some students say they feel it’s unfair to have extra taxes taken out later because too few were deducted in January and February.
“I feel like it would leave a bad taste in people’s mouths, especially if they are getting their normal paycheck for 2013 and then to have an employer to go back and take more out later,” Schulz said. “I think that would be harder for people than if they had just taken it out in the first place.”
Another consequence of the late decision to pass the act is that the IRS and the state of Minnesota have postponed the beginning of their tax filing season by eight days to Jan. 30 this year. The IRS said the extra time was needed to update its computer systems to reflect the new provisions of the Taxpayer Relief Act.
Paul Gutterman, senior lecturer of the University of Minnesota’s Master of Business Taxation program, said he was impressed with how fast the IRS is working to update its system but cautioned that the quick turnaround time could have consequences.
“There are bound to be more errors or glitches than they have had in the past because they haven’t had as much time to prepare as they usually have,” Gutterman said. “I think all taxpayers and students, if they are getting back a refund, should check that they get the amount that is on the return to ensure that it is accurate.”
The late start of tax filing season may delay refunds to taxpayers, including many who rely on tax refunds each year. The average refund for tax filers in 2012 was $2,707, according to the IRS.
Environmental sciences, policy and management senior Andrew Morrison said the delay will likely impact students who are paying off school as they go.
“There isn’t as much disposable income,” Morrison said. “They might really need that income to pay for books or living expenses.”
Though the start of tax-filing season will be postponed by more than a week, the deadline for filing taxes will remain April 15.
The University of Minnesota will offer free tax-filing assistance for students this year from Feb. 4 to April 15. The volunteers will be available from 10 a.m. to 4 p.m., Monday through Saturday in Hanson Hall Room 2-180.
Tax filing is done through the Carlson School of Management by student volunteers who have passed the IRS certification test for tax filing.
UMN students have traveled to Florida colleges to collaborate with students on various projects.
When UMN students plan for a vacation, having trip cancellation travel insurance is a worthwhile commodity to check out.
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