The first sign of Washington's new tax deal would be a boost to your paycheck, starting next month.
For 107,500 jobless Floridians, unemployment benefits would be restored. And anyone planning their estate now knows what the tax law will be for the next two years.
President Barack Obama announced on Monday that he'd reached a compromise with Republicans over the Bush tax cuts, which were set to expire Dec. 31. The compromise would cut payroll taxes, restore expiring unemployment benefits and bring back the federal estate tax. Now, the House and Senate have to vote on the deal, and if they agree, Obama would sign it into law by year's end.
The deal is a relief to anyone trying to plan their financial future. But whether it will help or hurt ordinary Americans is open to debate.
Even the broadest aspect of the bill — a payroll tax cut — has two sides. The tax cut will be offset by an expiring tax credit. The result for some workers: Tax bills will increase.
Here are what provisions of the new tax deal could mean to Floridians.
"The payroll tax cut is a big one to everybody," said Ken Strauss, director of tax and personal financial planning at South Florida accounting firm Berkowitz Dick Pollack & Brant. "The real question is can payroll companies get this in their [computer] systems quickly enough."
The deal calls for a 2 percentage point cut in employees' Social Security tax for one year. That'll pump up paychecks because workers now pay 6.2 percent of their income up to $106,800 in Social Security tax. Employers also pay 6.2 percent, and their contribution would not change.
Lowering the Social Security rate to 4.2 percent would add $50 to take-home pay each month for someone earning $30,000 or $125 for someone earning $70,000.
But your total tax bill could go up.
That's because the compromise does not extend the Making Work Pay tax credit, which has reduced workers' tax bills for 2009 and 2010. It was not part of the Bush tax cuts and is set to expire.
This year, the Making Work Pay tax credit provided up to $800 for two-income couples. While the new tax deal would reduce Social Security taxes by $720 for a married couple making $36,000 a year, the same couple would lose the $800 credit. Total tax bill: $80 more than before, according to a calculation by payroll firm Symmetry Software.
Tax credits are a boon to South Floridians, whose incomes have been dropping for two years, according to the Census Bureau. In Broward County, the median household income was $48,844 in 2009. In Palm Beach County, it was $49,580.
Cash would begin flowing again to the unemployed, because the agreement calls for a 13-month extension of long-term unemployment benefits. That program expired at the end of November, leaving 107,500 unemployed Floridians without benefits. Nationwide, the number of workers affected is 2 million.
If the compromise is approved, newly laid-off workers would be eligible for up to 79 weeks of unemployment benefits.
While few families pay estate taxes, those that expected to pay them were having a difficult time planning. This year, there is no estate tax. Next year, for estates worth more than $1 million, the tax rate was going to be 55 percent, if the Bush tax cuts expired.
The compromise calls for estates of more than $5 million to be taxed at a maximum rate of 35 percent for the next two years.
If the Bush tax cuts were allowed to expire, federal income tax rates would jump, pushing the top rate to 39.6 percent from 35 percent.
The compromise would prevent tax rates from rising. It also would keep capital gains tax rates, which investors pay, steady at 15 percent.
That would especially help seniors. "For people who are living on a fixed income and investments are paying so little, they would have been hit," if the capital gains had gone up, said Dennis Fitzpatrick, a principal with the South Florida accounting firm Kaufman, Rossin.
Under the compromise, "Nothing bad happens," said Clint Stretch, national director of tax policy at Deloitte in Washington.
Stretch said he expects extensions of some popular tax items — including the deductibility of state sales taxes — to be part of the final tax compromise law, which he expects will pass Congress before year's end.
In recent years, one in four Florida tax returns took advantage of this deduction.
Staff writer Marcia Heroux Pounds contributed to this story.
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