The numbers of the tax cut compromise
Federal income tax guides are seen at the Des Plaines Public Library.
TEXT OF INTERVIEW
STEVE CHIOTAKIS: First, to the tax cut compromise Congress passed last night and sent to President Obama's desk. You're going to hear all today about the political spin and what the bill does to the deficit. But we figured here at Marketplace should focus on the numbers of the bill. How much of a tax cut will you and I get? And when will we start to see that extra money?
Marketplace's Janet Babin is live with us from our New York studio with the latest. Good morning Janet.
JANET BABIN: Good morning Steve.
CHIOTAKIS: So when we will feel the effects of this tax cut package?
BABIN: At least a few weeks into next year, if not longer. That Social Security tax cut will mean a 2 percentage point reduction in nearly every workers pay check for of 2011. So what happens now, is the IRS sends out these payroll withholding tables. They come out every year, and they're used by payroll processors to do the math on how much tax to take out of our payroll checks. Usually the tables arrive mid November. Obviously, because of the last minute change, its going to take the IRS more time to get those withholding tables published. And when they do arrive, accountants and payroll staff are going to have to work at a frantic pace to implement them. In some cases, companies have to create software that that automatically figures in the lower tax.
CHIOTAKIS: Okay, so it might come late. But how much will that social security tax cut save us?
BABIN: Social Security taxes will be cut by nearly a third really -- from 6.2 percent down to 4.2 percent for all of next year. So if you make $50,000 a year, you'll save about $1000. The maximum deduction would be just over $2100, because Social Security stops taxing earnings above about $107,000.
CHIOTAKIS: Janet Babin, thank you.
BABIN: Thank you Steve.
CHIOTAKIS: Marketplace's Janet Babin, reporting from our studio in New York.