While the tax package
that Congress passed New Year's Day will protect 99% of
Americans from an income tax increase, most of them will still end up
paying more federal taxes in 2013. That's because the legislation
did nothing to prevent a temporary reduction in the Social Security
payroll tax from expiring. In 2012, that 2-percentage-point cut in the
payroll tax was worth about $1,000 to a worker making $50,000 a year.
The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes, too.
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.
"For most people, it's just the payroll tax," said Roberton Williams, a senior fellow at the Tax Policy Center.
The Tax Policy Center, a nonpartisan Washington research group, estimates that 77 percent of American households will face higher federal taxes in 2013 under the agreement negotiated between President Barack Obama and Senate Republicans. High-income families will feel the biggest tax increases, but many middle- and low-income families will pay higher taxes, too.
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.
"For most people, it's just the payroll tax," said Roberton Williams, a senior fellow at the Tax Policy Center.
The tax increases could be a lot higher. A huge
package of tax cuts first enacted under President George W. Bush was
scheduled to expire as part of the "fiscal cliff." The Bush-era
tax cuts lowered taxes for families at every income level, reduced
investment taxes and the estate tax, and enhanced a number of tax
credits, including a $1,000-per-child credit.
The package passed by the Senate and House extends most the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000.
Obama said the deal "protects 98% of Americans and 97% of small business owners from a middle-class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country."
The income threshold covers more than 99% of all household)s, exceeding Obama's claim, according to the Tax Policy Center. However, the increase in payroll taxes will hit nearly every wage earner. Social Security is financed by a 12.4% on wages up to $113,700, with employers paying half and workers paying the other half. Obama and Congress reduced the share paid by workers from 6.2% to 4.2% for 2011 and 2012, saving a typical family about $1,000 a year.
The package passed by the Senate and House extends most the Bush-era tax cuts for individuals making less than $400,000 and married couples making less than $450,000.
Obama said the deal "protects 98% of Americans and 97% of small business owners from a middle-class tax hike. While neither Democrats nor Republicans got everything they wanted, this agreement is the right thing to do for our country."
The income threshold covers more than 99% of all household)s, exceeding Obama's claim, according to the Tax Policy Center. However, the increase in payroll taxes will hit nearly every wage earner. Social Security is financed by a 12.4% on wages up to $113,700, with employers paying half and workers paying the other half. Obama and Congress reduced the share paid by workers from 6.2% to 4.2% for 2011 and 2012, saving a typical family about $1,000 a year.
The new tax package would increase the income tax rate from 35% to 39.6% on income above $400,000 for individuals and $450,000 for married couples. Investment taxes would increase for people who fall in the new top tax bracket.
High-income families will also pay higher taxes this year as part of Obama's 2010 health care law. As part of that law, a new 3.8% tax is being imposed on investment income for individuals making more than $200,000 a year and couples making more than $250,000. Together, the new tax package and Obama's health care law will produce significant tax increases for many high-income families.
For 2013, households making between $500,000 and $1 million would get an average tax increase of $14,812, according to the Tax Policy Center analysis. Households making more than $1 million would get an average tax increase of $170,341. "If you're "rich", you're almost certain to get a big tax increase," Williams said. Here's how the tax increases will affect households at different income levels:
Annual income: $20,000 to $30,000 = Average tax increase: $297
Annual income: $30,000 to $40,000 = Average tax increase: $445
Annual income: $40,000 to $50,000 = Average tax increase: $579
Annual income: $50,000 to $75,000 = Average tax increase: $822
Annual income: $75,000 to $100,000 = Average tax increase: $1,206
Annual income: $100,000 to $200,000 = Average tax increase: $1,784
Annual income: $200,000 to $500,000 = Average tax increase: $2,711
Annual income: $500,000 to $1 million = Average tax increase: $14,812
Annual income: More than $1 million = Average tax increase: $170,341
Source:CNBC news