Yes, it was tense in the last few days. Yes, you were concerned about a big tax hike and the cost of milk. Yes, the media played up the drama talking about it everyday. Well, since Congress and the President finally compromised and hammered out a bill they could support, crisis averted, right? Right....for most Americans.
Unfortunately, every working taxpayer will see a lower paycheck for the pay period that began January 1, 2013. For all the ills that President George W. Bush and his Congress created or may have created, there were some worker incentives put in place, termporarily, to spur the economy. One such temporary incentive was the payroll tax cut.
Since I've been working (lots of years), FICA (Social Security and Medicare taxes) withholding has been at about 15%. Employers have paid half of that with employees responsible for the other half. The employee's portion of the Social Security tax withholding has been 6.2% for YEARS. President GWB and his Congress reduced that amount to 4.2% which resulted in an immediate "raise" of 2% for all employees. That temporary reduction expired December 31, 2012. President Obama and this Congress did not do anything to extend that provision and as such, we revert back to paying the 6.2% as of January 1, 2013. This results in person who makes $50,000 bringing home $1,000 less.
Other important provisions for tax, however, were allowed to remain in the final version of the bill, most notably, the child and dependent care credit, the child tax credit and the earned income credit. Additionally, GWB and his Congress reduced the lowest tax rate to 10% along with the other tax rates. President Obama and this Congress did not increase those rates (so in way, President Obama did keep his pledge of not raising taxes on most Americans). He was able, however, with the help of Congress, to raise the tax rates on those earning more than $400,000 a year. So if you fall into that income bracket, you will see your taxes increase. Unemployment was also extended, which is a good thing.
For business owners and corporations, the bonus depreciation deduction is still available as well as the Research and Development credit. All in all, not a 100% victory on either side, but as stated before, most of us can applaud the bill, along with not worrying about AMT (permanent patch in place so that middle income families aren't hit by it inadvertently) or finding an alternative to milk. My three-year old was defnitely concerned by the latter.