Fiscal deal will cost you: 8 tax changes
[Editor's note: This story was updated on Jan. 2 at 10:00 am ET.]
Congress has passed a fiscal deal that averts the worst of the tax increases under the "fiscal cliff." But most Americans will still end up paying more in federal taxes. Here are eight tax changes under the fiscal deal that may hit your pocketbook:
1. Beware the $740-a-year 'stealth' tax
While the fiscal deal makes permanent the Bush-era tax cuts, thus averting the biggest tax increases that would have gone into effect in 2013, it didn't extend the second biggest one. Congress quietly let the temporary Social Security payroll tax cut expire. That means that the 2-percentage-point cut in the payroll tax that wage earners have enjoyed over the past two years ratchets back to its normal 6.2 percent level. That represents an extra $115 billion of revenue a year for the federal government, according to the Tax Policy Center, or about 22 percent of the total tax rise had all the "fiscal cliff" tax provisions taken effect.
The increase in the payroll tax would raise the tax bill for the lowest 20 percent of income earners by 1.1 percentage points, 1.3 percentage points for middle 20 percent, and 0.8 percent for the top 20 percent (who earn more from capital returns than from wages), the Tax Policy Center estimates. The impact on the average taxpayer: an extra $740 a year.