The so called “Taxmageddon”, which is expected to increase taxes on 88% of US households, is quickly approaching, but there is another tax break set to expire at the end of the year that will impact anyone earning a wage.
The portion of the Social Security payroll tax that employees are responsible for was cut from 6.2% of wages to 4.2% as part of a payroll tax holiday intended to boost incomes and stimulate the economy. As a result, an employee earning $50,000 would save $1,000 over the course of the year, or $19.23 per week. The cut was billed as a temporary tax break, and unlike temporary tax hikes, it is set to expire at the end of the year with bipartisan support.
Congress has little appetite to extend the payroll tax holiday into 2013 in large part because this tax is what funds Social Security. The amount of lost revenue in 2011 was estimated at $103 billion and increased to $112 billion in 2012. To offset the lost revenue, the Social Security Administration is borrowing money and increasing the national debt. There is also skepticism about how much the tax cut is boosting the economy, which has grown by a dismal 1.77% through the first three quarters of 2012.
So, while Taxmageddon will likely receive the majority of the media’s attention in the coming months, there is another tax hike break set to expire that will result in a smaller paycheck.