NEW YORK (CNNMoney) — The payroll tax cut you’ve enjoyed since last year may be going away in January.
And for most Americans, it’s one of the most concrete pieces of the so-called fiscal cliff — $7 trillion in tax hikes and spending cuts set to take effect next year.
The payroll tax cut — worth 2% of the first $110,100 of one’s wages — started in 2011 and remains in effect until Dec. 31. It noticeably increased paychecks for workers. A person making $50,000 has enjoyed roughly $83 extra a month, while someone making $110,100 has been taking home an extra $183.50 a month.
Unless Congress decides to extend the policy for another year, workers’ take-home pay will be reduced by similar amounts starting in January. That’s because the payroll tax rate — temporarily set at 4.2% — will revert to its original 6.2%.
The cut in the payroll tax — which funds Social Security – was intended to temporarily bolster consumer spending and therefore help the economic recovery.
If it expires as scheduled, the Congressional Budget Office estimates that federal revenue will increase by $95 billion next year.
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