At the stroke of midnight, your effective salary will shrink.
Starting Tuesday when the payroll tax break expires, around 160 million American workers will bring home less money with every paycheck. For workers earning $50,000 in annual salary, that means $80 a month slashed from take-home pay. That's nearly $1,000 for the year. Another way to think about it: It adds up to one less bag of groceries each week.
As of Monday afternoon, Congress and the President had not reached an overall compromise on the so-called fiscal cliff, the series of tax hikes and budget cuts set for Jan. 1. (You can get live updates on the negotiations on HuffPost.) However, even if a compromise is reached, the payroll tax hike is likely to happen starting Tuesday -- neither party has pushed to extend it.
The end of the payroll tax cut "is definitely a squeeze and one we are very concerned about," Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a non-partisan research and policy institute, told The Huffington Post in October.
Passed in 2011, the payroll tax cut temporarily lowered the tax rate to 4.2 percent from 6.2 percent for income contributed to the Social Security program. The cut was designed to put more money into Americans' hands and act as an economic stimulus. However, economists are mixed on whether it has acted as a stimulus over the past two years.
Joseph Rosenberg, a research associate at the Urban/Brookings Tax Policy Center told Marketplace that if the Bush-era tax cuts are extended for the middle-class “then the impact of the expiration of the payroll tax is not likely to have a significant economic impact.”
With only hours remaining until the deadline on Monday, the chances of reaching a deal by the end of the year were only “a little better than 50-50” Rep. Chris Van Hollen (D-Md.), a leader on the House Budget Committee, told Bloomberg Television on Monday.
10 Ways You've Already Fallen Off The Fiscal Cliff
Residential Energy-Efficiency Credits(01 of10)
Open Image ModalMortgage Insurance Premiums(02 of10)
Open Image ModalAdoption Credit(03 of10)
Open Image ModalTaxpayers who have out-of-pocket adoption expenses or who adopted a child with special needs can only claim the adoption credit to the extent of their tax liability. While the portion of the credit not taken into account in 2012, up to $12,650 per child, is carried forward to future years, the benefit is no longer fully refundable, according to tax experts. (credit:Shutterstock)
Alternative Minimum Tax(04 of10)
Open Image ModalIf the alternative minimum tax legislation is not retroactively patched for 2012, current law could result in an increased tax liability for up to 34 million Americans. According to a study by the Tax Institute at H&R Block, an average family making $85,000 with children in college could see their tax liability soar from a $1,056 refund to owing $1,400. (credit:Shutterstock)
American Opportunity Tax Credit(05 of10)
Open Image ModalTuition bills will be higher starting on Jan. 1 because families will lose the $2,500 American Opportunity Tax Credit, which ends in 2012 unless Congress takes action. More than 2.4 million Americans claimed this deduction in 2009, resulting in a combined decrease in taxable income of $5.4 billion, according to tax experts. (credit:Shutterstock)
Payroll Tax Credit(06 of10)
Open Image ModalPaychecks will be smaller starting Jan. 1, 2013. An American making $50,000, for example, will lose $80 in monthly pay after the credit ends. The temporary credit also has lowered the amount workers contributed to Social Security by 2 percent. (credit:Shutterstock)
Educator Expense Deduction(07 of10)
Open Image ModalTeachers lose their $250 maximum deduction on expenses related to buying school supplies. This credit expired at the end of 2011, and teachers won't be able to claim this benefit on their 2012 taxes unless Congress takes action. In 2009, more than 3.8 million teachers claimed this benefit for a combined deduction of $9.7 billion, according to H&R Block. (credit:AP)
Sales Tax As An Itemized Deduction(08 of10)
Open Image ModalTaxpayers will no longer have the option of claiming an itemized deduction for state sales tax in lieu of state income tax. This expiration will have a greater impact on taxpayers who reside in a state with sales tax, but no income tax, including Alaska, Florida, Texas, Nevada, Washington, South Dakota, and Wyoming. (credit:AP)
IRA Retirement Funds(09 of10)
Open Image ModalTaxpayers over age 70½ no longer have the option of directing their income from an IRA distribution to a charitable organization. Starting this year, older taxpayers must include the distribution in income and claim a charitable deduction, resulting in a potentially higher tax bracket and a need to itemize instead of claiming the standard deduction, according to H&R Block. (credit:Shutterstock)
Later refunds(10 of10)
Open Image ModalAs if losing all those tax credits was not bad enough, the earliest date to file a 2012 tax return electronically has moved back to Jan. 22, 2013. As the IRS has indicated that refunds could take as long as 21 days to process this year, a refund in January to cover Christmas credit card payments, winter heating bills, or rent is unlikely. (credit:AP)
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