American Paychecks to Shrink, to Chagrin of Employers and Employees

Categories: Government, Tax/Finance


Get ready for a heaping dose of bummersauce: They say the only certainties are death and taxes — but you can also count on your 2013 checks being smaller because of those taxes. CNN Money has the bad news:

Payroll taxes are key for financing Social Security, and the break of the past two years has forced the government to replenish the funds with borrowed money. The tax break was always meant to be temporary.

Workers earning the national average salary of $41,000 will receive $32 less on every biweekly paycheck. The higher the salary (up to $113,700), the bigger the bite, but business owners say their lower wage employees will feel it most.

Deborah Koenigsberger, who owns the Noir et Blanc fashion store in Manhattan, has yet to have the talk with her only part-time employee, a college student.

"It's going to hurt me to tell her this. She can't afford a decrease," Koenigsberger said. What unnerves her is the feeling that she's lost control as a business owner watching out for her employees.

Keval Mehta, CEO of In-R-Food, a smartphone app developer in Durham, N.C., worried the tax increase will threaten morale. "They don't get paid enough for what they do," Mehta said.

The 1-year-old company has yet to make a profit, having just launched software that scans grocery products and lists ingredients and nutritional values. His four employees could make upwards of $80,000 a year elsewhere, but three of them earn less than half that. They put in long hours, must work from laptops while on vacation, and no, there isn't a health insurance plan.

All that made it even more difficult to warn them during the holidays about the oncoming pay cut. Mehta promised them he'd make up the lost pay if the company's finances improve next year.

"Currently, they're working on passion. But that can only drive you so much," Mehta said. "I don't like that I don't have control over this. It wasn't a decision I made. But as a CEO, you take responsibility for everything. You're automatically at fault, because you're the captain of the ship."

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