If our Congress doesn’t act and come to an agreement on the extension of the payroll tax holiday by December 31, you could see a tax increase next year of 2% on the first $110,000 of your wages.
It doesn’t matter what party you like, if the legislation is not passed your take home pay is going to be less next year. And however you look at it, that sucks.
Ordinarily, you pay 6.2% of your income to the government for your payroll tax. Your employer pays the other 6.2%. And if you’re self employed, you pay the entire 12.4%.
In the stimulus that was passed last year, there was a one-year reprieve that said you would only pay 4.2% of your pay. That 2% savings was passed on to you throughout the year.
It impacts up to 160 million working Americans and applies to the first $106,000 of your income.
So if you make $40,000 per year, you saved over $800 in taxes this year compared to what you normally would have paid.
If the payroll tax is extended, you’ll have the same savings in 2012. If not, you’ll have 2% more taken out of your check. On a $40,000 income, taking home $66 less per month may not break your bank but in this economy every dollar counts, right?
For the most part, Democrats and Republicans agree that the payroll tax plan should be extended. The problem is that they disagree on how to foot the $120 billion bill. Democrats are proposing a surtax on millionaires and to roll back some tax breaks on the oil industry but Republicans aren’t having it. They propose freezing federal pay and reducing the federal workforce by 10%.
If they can’t find a compromise, you’re the one that is going to suffer.