Payroll Tax Holiday: Its Expiration Would Mean Less Take-Home Pay

The fate of the so-called payroll tax holiday, which has been providing the average worker with about $1,000 more in extra cash a year, is slated to fall over the “fiscal cliff” on Dec. 31.
But there has been little action so far in Congress to extend the payroll-tax break for millions of Americans. Media reports have been mixed on its fate.
Business Insider reports that both parties in Congress have quietly agreed to let it expire. Reuters reports that support is mounting, especially among Democrats, to extend it.
For a family of four making the median household income, that tax cut is worth about $40 a paycheck paid out on a bi-weekly basis.
The payroll tax holiday is in its second year, but the tax break will expire at the end of the year as part of about $500 billion in tax cuts and another $100 billion in automatic budget cuts that make up the so-called fiscal cliff.
Keeping the holiday would help reduce the impact of the “cliff” on middle-income Americans. But the payroll tax funds the Social Security retirement program, and shoring up that program is a highly divisive issue.
The payroll tax which finances Social Security is paid by employers and employees at a rate of 6.2 percent of wages, up to a maximum of $110,110. The payroll tax holiday, enacted in 2010, reduced the rate by 2 percentage points on the portion paid by the worker.

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