If you are one of the 160 million Americans who earns a paycheck each week, you must be well aware of the amount of taxes taken out every pay period by your local, state and federal government.
But you may be surprised to learn that on December 31st your tax bill will jump 2% starting with your first paycheck in 2013 and beyond, which brings us to the topic of today's edition of Just Explain It: The payroll tax holiday.
The payroll tax holiday is over. That's right. Your two-year, 2% tax holiday will be over at the beginning of 2013.
That means a family earning $50,000 a year can expect to see a loss of $40 per paycheck, or $1,040 each year.
It is one tiny part of the massive fiscal cliff set to take effect at the end of the year and most politicians in Washington, on both sides of the aisle, do not believe it is worth fighting for with other more crucial tax hikes and spending cuts on the table.
Congress first approved the payroll tax cut for all of 2011 as a temporary measure to help heat up a sluggish U.S. economy.
Workers' payroll tax contributions, which are used to pay for Social Security, were slashed for the first time in history from 6.2% to 4.2%. The tax cut was capped at $2,200 for workers who earn $110,100 and more.
At the end of 2011, lawmakers approved the payroll tax cut again, but only for the first two months of 2012. In mid-February, after plenty of partisan bickering in Congress, the payroll tax holiday was eventually extended through all of this year.
Various economic forecasts have found that the expiration of the payroll tax cut will lead to a roughly $120 billion reduction in consumer spending in 2013. That figure may seem like a lot, the payroll tax cut is only a quarter of the broader fiscal cliff and why Congress will likely let the tax holiday expire.
That's why can all expect to be paying higher taxes in 2013, regardless of who wins November's presidential election.
Did you learn something? Or have a topic you'd like explained? Give us your feedback in the comments below or on Twitter using hash-tag JustExplainIt.
- Budget, Tax & Economy
- Politics & Government
- payroll tax