Payroll Tax Hike Will Affect Your Paycheck and the Economy

The sting from higher taxes in your first 2013 paycheck is also going to sting the economy this year, particularly in the first quarter.

As of Jan. 1, the payroll tax that funds Social Security was raised two percentage points to its 2010 level of 6.2 percent. It is also by far the biggest component—$125 billion of the $190 billion—in tax increases approved by Congress to fend off a bigger wave of tax hikes from the "fiscal cliff."

Economists expect it to pare as much as 1 percent or even more from first quarter growth on an annualized basis.

"In Q1, annualized it will shave about 1.4 percent off GDP," estimated Mark Zandi, chief economist at Moody's He said the payroll tax increase is by far the biggest hit, and he expects that the other new taxes amount to a dent to growth in the first quarter of about 0.3 percent.

The payroll tax increase is widely expected to shave about 0.6 percentage point off of GDP this year, but the hit will be hardest in the first quarter as consumers initially feel the pinch.

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New taxes this year also include the higher income tax rate of 39.6 percent for 1 percent of Americans. Other new taxes include the five percent hike in both capital gains and dividend tax rates, as well as the new 3.8 percent tax on some investment income for wealthy Americans, and the 0.9 percent tax on income over $250,000 from the Affordable Care Act.

"It's a shock because people got used to it," said Diane Swonk, chief economist at Mesirow Financial. For a household of $50,000, the hit to income is $1,000, she said. "The offset is home prices are rising and refis are up but on the other side of this is it is real money to these people. For households that are $75,000 and under, this is a real issue and that's a lot of households." (Read More: 5 Ways To Counter the Impact of the Payroll Tax Hike )

The payroll tax is levied on income up to $113,700 annually, so it is a tax felt more by lower income workers. On a whole, the increase should cost the average worker about $700, according to the Tax Policy Center in Washington.

"Lower income households are very liquidity constrained," Zandi said. "They'll spend what they have and they won't spend what they don't have. That's why this has a significant boost when you provide it, and a significant hit when it goes away." (Read More: Think Only the Rich Will Pay More Taxes? You're Wrong )

The pullback in spending would hit all sorts of businesses, especially those that rely on discretionary dollars, including retailing, restaurants, entertainment and leisure in general.

"Employment will be 400,000 lower than it would be if the payroll tax holiday was in place through the end of the year, and the employment rate would be about 0.3 of a percent higher than it would be without the holiday," Zandi said.

Zandi expects first quarter GDP growth of 1 percent, but he expects it to improve to a level of about 3 percent by the end of the year, giving 2013 an estimated growth rate of just about 2 percent. He also expects the payroll tax to be a drag on second quarter growth of about 0.9 percent.

Swonk expects GDP growth of 1.75 percent in the first quarter, in part because she expects the rebuilding from Hurricane Sandy to help sales of home goods and construction. She sees a smaller impact than Zandi from the payroll tax and estimates the hit to growth to be 0.75 to 1 percent in the first quarter.

Barclays chief U.S. economist Dean Maki sees growth amounting to just 1.5 percent in the first quarter for GDP and sees the same for consumer spending. (Read More: 5 Ways to Put Extra Cash in Your Pocket in 2013 )

"For the tax increases as a whole, we calculate in the first quarter, real disposable income is likely to fall by 3.9 percent annualized," said Maki.

"We would expect the fiscal tightening is a drag of 1.5 percent in the first quarter. We think it's a drag of 1 percent in the second quarter and a half percent in the second half of the year," he said.

Maki said if there were no change in the payroll tax, consumer spending could be growing 2.5 to 3 percent. "It's not as much a deterioration as it is households stop spending. If there were not fiscal tightening at all we would expect growth in 2013 more on the order of 3 percent," he said.

"We think the savings rate is likely to take a leg down. Households will buffer a lot of this by saving less," Maki said.