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What the fiscal cliff will do to your paycheck

10:00 AM, Dec 31, 2012   |    comments
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At the heart of the fiscal fight in Congress is a debate over how much tax you should pay.

If you earn a paycheck, you're going to notice changes on your first paychecks in 2013.


Remember this one? Also known as the payroll tax "holiday," a reduction of social security taxes from 6.2 percent to 4.2 percent was put into place as a temporary stimulus measure.

Extending this temporary tax break was the fiscal cliff's equivalent last year, keeping Congress and the President fighting into the holiday season.

In 2011, the White House launched a twitter campaign with the hashtag #40dollars, referring to the amount the tax break benefits the typical household each biweekly paycheck.

As part of the fiscal cliff talks, the President has reportedly backed off of defending the tax break for a third consecutive year.

Expect to see this take a bite out of your first paycheck on 2013.


In political shorthand, these are the "Bush-era tax cuts" which have been extended due to the recession.

The rates are different depending on your income level, but you can expect your tax rate to increase three to five percentage points if the rates are allowed to revert to Clinton era levels.

That reversion is set to automatically occur when this year ends. The Tax Policy center estimates it would cost the typical household $3,500 - or about $135 per biweekly paycheck.

If there's no deal, you won't notice this ugly change on your pay stub next month.

The reason being that the IRS has not yet published 2013 tax withholding tables for employers to use, which means companies will rely on the 2012 tables instead to calculate income tax withholding.

That leaves time for Congress to undo the tax increases caused by going over the fiscal cliff without hitting workers' take home pay.


Paychecks could become non-existent for people with jobs tied to federal spending.

Federal spending cuts could hit the bottom line for the unemployed, doctors, and federal contractors.

Click here to find more details on what would and wouldn't be affected in this explanation from CNN Money.


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