Workers set to pay more taxes despite fiscal cliff deal - KAIT-Jonesboro, AR-News, weather, sports

Workers set to pay more taxes despite fiscal cliff deal

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JONESBORO, AR (KAIT) – Congress may have struck a deal earlier this week to avert careening off the so-called fiscal cliff, but most Americans will still end up paying higher taxes in 2013.

The American Taxpayer Relief Act of 2012, passed on New Year's Day to avert the fiscal cliff, included measures to prevent income tax rates from increasing on the middle class.

Most of the nation's 160 million workers, however, will still take home smaller pay checks this year.

That's because the legislation did nothing to stop a two-year temporary cut in the Social Security payroll tax from expiring this week.

"You're going to see an additional two-percent Social Security tax withheld," said Sherry Stringer, an accounting partner at Jones & Company, Ltd., in Jonesboro, "so I think some people are going to be pretty surprised because they thought this was all fixed. It was maybe for most people on income taxes, but on Social Security tax, you're going to see your check go down."

Stringer has gotten a lot of calls recently from clients worried about the changing payroll taxes.

In 2011 the federal government temporarily lowered the payroll tax, which funds Social Security.

The tax went from 6.2 percent to 4.2 percent in hopes that this would help boost the economy by giving workers a little extra money.

With the economy improving, Congress decided to let the payroll tax revert to the pre-stimulus level of 6.2 percent, which means workers will pay two percent more in payroll taxes.

The latest estimates show that workers making $50,000 will pay an extra $1,000 in payroll taxes this year. That equals about a $38 reduction in pay on a bi-weekly pay check.

"[That pay cut] will be noticeable in people's pay checks," Stringer added.

Some workers worry this tax cut has come at an inopportune time and will negatively affect their spending habits in the months ahead.

The latter is certain, according to economics professor Dan Marburger at Arkansas State University in Jonesboro.

"We will see in our pay checks a little less money," Marburger said. "I think the average person is going to pay $1,000 more in taxes this year. That's obviously going to vary by income class, but it's going to be a hit that you'll notice."

Marburger said the payroll tax increase was unavoidable because everyone knew it was temporary.

"We are going to be helping the senior citizens with their Social Security benefits," he said. "That's what the money was there for and so I don't expect the payroll tax increase – we may not like it as consumers and citizens, but I don't think it's going to hurt the economy much."

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