The expiration of a federal “payroll tax holiday” on Jan. 1 hit the wallets of Hawaii wage earners in the first quarter, contributing to the first decline in personal income in nearly four years, according to a report released today.
Personal income, which includes salaries and wages, investment income and federal government payments, fell by 0.8 percent in the first quarter compared with the last three months of 2012, the federal Bureau of Economic Analysis reported. It was the first quarterly drop in personal income since the third quarter of 2009 when the economy was slogging through a recession.
Workers in Hawaii and the rest of the country saw their payroll taxes go up by 2 percentage points at the start of the year as part of the “fiscal cliff” deal approved by Congress that ended a two-year tax holiday. The amount employees contribute to Social Security was restored to a full 6.2 percent of their salary from the reduced 4.2 percent rate that had been in effect for 2011 and 2012. For an average worker making $45,000 a year the tax increase amounted to a roughly $900 reduction in take-home pay.
In addition to the restoration of the payroll tax, the decline in first quarter personal income reflected the acceleration of stock dividends and salary bonuses into the fourth quarter of 2012 in anticipation of higher individual tax rates in 2013, according to BEA.