Payroll Tax Cut: to increase/not to increase


Mid December, Senate leaders on the Hill came to an agreement, albeit temporary, still an agreement. To extend the payroll tax cut for 2 more months, until they can revisit the bill.

The controversial bill threatened a government shutdown because House and Senate leaders could not agree on the terms of the bill.  The bill, which needs both Congressional and Senatorial approval, would save Americans about $1 thousand dollars if passed.  If it is not, then Americans making roughly $50,000 would see a tax increase of 1 thousand dollars, or $40 per pay check.

While Senate leaders agreed on a deal that would extend the payroll tax cut by two-months, Republican Congressional leaders voted down the two-month extension.    In what seemed to be a back-and-forth standoff between House Republicans and president Obama, late Thursday December 22, 2011 the House Republicans reached a deal.  It was passed and signed into law before Christmas.

The deal approved by Senate leaders would also require the administration to decide quickly whether to allow construction of a controversial transcontinental oil pipeline.

Under the deal, the payroll tax, the rate paid by 160 million workers will remain at 4.2 percent through February, rather than reverting to 6.2 percent on Jan. 1.

In addition, benefits for the long-term unemployed will be extended for two months, and scheduled cuts to Medicare reimbursement rates for doctors would be postponed.

Under the agreement, Congress would approve language requiring that a construction permit be issued for the 1,700-mile Keystone XL pipeline within 60 days unless the president determined the pipeline was not in the national interest.  This element will add some pressure to the Obama camp, ahead of his reelection campaign bid next year.

Allowing the one-year tax holiday to expire would have meant a tax increase of $1,000 next year for a family making around $50,000 a year.

The impact on your wallet: The payroll tax extension allows employees to only pay 4.2% of their first $106,800 in wages into Social Security this year, instead of the normal 6.2%.

Because of the extension, workers in 2012 don’t have to pay the extra 2 percentage points of their income up to the wage cap, which next year will be $110,100.


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