This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How Much the Payroll Tax Cut Is Worth to You

NEW YORK ( MainStreet) -- The fate of the payroll tax cut is looking increasingly grim as House Republicans voted Tuesday to reject a stopgap measure that would have extended the tax cut through February, calling instead for further negotiations. If it fails to pass, many Americans could find themselves with significantly less disposable income in the new year.

Without the tax cut extension, a household earning $50,000 a year will effectively see their taxes increase by about $1,000 next year, netting them $40 less with each paycheck, according to data from the White House. Likewise, a family earning $80,000 a year would be forced to pay an extra $1,600 for the year in taxes, which works out to be more than $60 shaved off every paycheck.

If Congress fails to extend the payroll tax cut, many Americans will be forced to pay an extra $1,000 or more in the coming year.

Those numbers are based just on the difference between keeping the tax cut as is and letting it expire. Factoring in the original proposal from the Obama administration, though, the loss is even greater. As reported, President Barack Obama's original plan was to lower the payroll tax rate even further, from 4.2% in 2011 to 3.1% in 2012, so a family earning $50,000 a year would save an extra $300 on top of the $1,000 they were already saving.

While extending or increasing the payroll tax cut would decrease government revenue, economists have argued that it would boost consumer spending, which in turn would help businesses create more jobs. Instead, consumers may end up finding themselves even more strapped for cash next year without that extra money.

For those households that earn $50,000 a year, losing an extra $40 on each paycheck may not seem like a lot, but consider it in terms of what that money buys. For starters, it's more than enough to pay for the average person's cellphone bill ($47 a month) with money left over to come close to filling up a tank of gas (gas costs $3.13 a gallon now, on average).

Taken in total, having an extra $1,000 a year would be enough for the average household to cover roughly half of its annual energy costs or simply to buy two new 16 GB iPads. In fact, considering that the vast majority of Americans say they don't even have $1,000 in emergency funds, the opportunity to put that money aside next year could quite literally prove to be a lifesaver.

What would you do with an extra $1,000 a year? Let us know in the comments section!

>To submit a news tip, email: tips@thestreet.com.

Follow TheStreet on Twitter and become a fan on Facebook.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
YHOO $44.13 -0.69%
AAPL $124.25 -0.14%
FB $81.66 -0.67%
GOOG $542.56 -0.99%
TSLA $187.59 -0.63%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs