President Obama, in a statement made yesterday, Jan 1, announced that both houses of Congress have agreed to make permanent the Bush-era tax cuts for most American workers. This action prevents an immediate increase in withholdings from workers’ paychecks and provides relief for families struggling to make ends meet each week.
Additionally, the expanded Earned Income Credits, Child Tax Credits and the American Opportunity Tax Credits, a credit for taxpayers that pay college tuition, have been extended for another five years. These savings will affect families’ 2013 tax returns.
What is missing from the deal is an extension of the Social Security tax holiday that cut the Social Security tax rate from 6.2 percent to 4.2 percent. The FICA payroll tax rate was reduced in 2011 as part of a stimulus package. Congress extended the reduction through 2012.
With the tax holiday expiration, the full 6.2 percent contribution to Social Security returns, and workers can expect an additional $2 from every $100 of gross pay to be deducted from their pay in 2013.