Congress worked early into the new year to avert the fiscal cliff, but one tax holiday is officially over.
99% of Americans can breathe easier thanks to a deal lawmakers pieced together to avoid major income tax hikes that were a part of the fiscal cliff. If you make less than $400,000 dollars a year as an individual, or less than $450,000 dollars as a couple your income taxes will not be going up.
But your paycheck will take a hit because congress did not renew the Payroll Tax Holiday.
“The payroll tax holiday was for social security, the employee portion of it. They [Congress] had done it in such a way that employees were contributing 4.2% of their gross salary,” says Juliana Kennedy, CPA. “So now they’re going to pay 6.2% just as employers do.”
The move was intended to give consumers a little more money to spend at the height of the recession and was only supposed to last for one year. Congress then chose to extend the bill for an additional year.
The tax will go from 4.2% to 6.2%. For someone making $20,000 dollars a year that’s around an additional $400 dollars they will have to contribute, which means they’re paychecks will be $15 dollars lower. For a worker who takes home $50,000 dollars a year it’s an extra $1,000 dollars, which means their paychecks will be $38 dollars lower.
A smaller paycheck might mean cutting out some of your little extras, like your morning latte, which in the end could take its toll on the economy.
WANT MORE LOCAL NEWS?
Get daily news headlines delivered to your inbox!Sign Up Today!