It’s likely employees will be less than thrilled when looking at their paychecks in January, if Congress doesn’t extend this tax measure.
At this time last year, Congress authorized a yearlong payroll tax holiday as part of a legislative package that extended President George W. Bush’s income tax cuts.
Under the tax holiday, workers have been paying 4.2% on the first $106,800 of their wages into Social Security. But if the tax break is allowed to expire at the beginning of the new year, that tax will jump to 6.2% — costing the average worker an extra $934 in taxes in 2012.
Congress’ debt “super committee,” which was tasked with recommending more than a trillion in federal spending cuts by November, was expected to address an extension of the tax holiday in its negotiations. But earlier this week, the committee announced it had failed.
What’s next?
President Obama included an extension of the tax break in his American Jobs Act, which Congress failed to pass but is now considering on a piecemeal basis.
Obama is now pushing Congress hard to extend, and possibly increase the size of, the temporary tax cut.
His stance: Given the rough economic conditions, now’s not the time to hit workers with what amounts to a tax increase that would drag down their purchasing power, along with economic growth.
An extension is not a slam dunk, however. Opposition is starting to mount because of the extension’s $100 billion price tag. And tackling the national debt is priority No. 1 on many a lawmaker’s radar.
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