Senate Passes Bill to Extend Payroll Tax Cut Temporarily (and Other Provisions)

On December 17th, after what were characterized as more heated, intense negotiations, Republicans and Democrats in Senate came to a compromise that extends the payroll tax cuts for just two months. 

The House still needs to pass the bill, then it’s up to the President to sign the bill.

The Obama Administration wanted further cuts that would save a household making $80,000 per year an additional $2,500 in tax liabilities.

If the payroll tax cuts haven’t been high on your reading list, there are a few reasons why that should change.

Within the bill there are winners and losers and much like the recent Supercommittee impasse, when this issue surfaces again in February, your paycheck could be at risk if both parties can’t come to a longer term agreement.

Here are a few reasons you might want to keep up with this issue.

Your Paycheck

Without Congressional action your paycheck would look a little smaller next year.

According to an interactive calculator at the White House website, a family making $50,000 would have an additional tax liability of $1,000 if the tax cuts are left to expire.  That equals $83 per month less that you would bring home per month.  For those living on lower wages and higher food prices, that is a major impact.  (source:


The bill contains language that prevents Medicare payments to doctors from being slashed.  Americans using Medicare as their primary coverage are finding it increasingly difficult to receive quality medical coverage as doctors in private practice can’t afford to treat these patients.  Any further cut of Medicare payments could make this problem worse.

A Pipeline?

One of the most talked about provisions in this compromise is the language that forces President Obama to make a decision about the Keystone XL Pipeline.  This oil pipeline would run from Canada to Texas and, according to Republicans, would be a major job creator.

Democrats oppose it because of the possible environmental impact.  The President delayed making a decision on the project until 2013 when the results of an environmental study would be completed.

According to analysts, forcing Obama to make a decision within 60 days almost assures that the project won’t move forward.

Who Pays for it?

Congress could only find agreement in a two month bill because they couldn’t agree on how to pay for the extensions in a larger bill.

They decided to raise fees charged to banks by Fannie Mae and Freddie Mac that allows the government to guarantee the loans. This fee increase is expected to generate enough revenue to pay for the $30 billion temporary measure but in the end, banks will pass those fees on to borrowers.

New borrowers with a Fannie Mae,Freddie Mac, or FHA-backed loan will be paying more per month — approximately $17 more on a $200,000 home mortgage.  (source:

Bottom Line

The battle isn’t over.  In less than two months we’ll see the issue heat up once again and with election season in full swing, there’s little doubt that both sides will look for ways to use a bill like this to look like the party more in tune with the needs of the average consumer.

Some Congressional actions have little impact on our everyday lives but the payroll tax extensions directly affect our paycheck.

This is one Congressional battle worth following.



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Published or updated August 25, 2013.


  1. Paychecks could look smaller in 2012 only because they got larger in 2011. We shouldn’t have such short memory. If those who still have jobs in 2012 lived OK in 2010, they will live OK in 2012. Payroll tax cut will have to end some day. When that some day comes, paychecks will look smaller. Not wanting paychecks to look smaller isn’t enough reason to keep extending the cut.

  2. Great post and great insight. We never should have paid off the stupid banks in the first place. Stupid government.

  3. The payroll tax cut is a scam. This is the money that is suppose to be going to social security, a program that is already unable to meet it’s future obligations. It’s unfortunate Obama was able to outsmart the Republicans and put them in a position where they can be accused of raising taxes if they expire. We need real tax reform not gimmicks that buy votes!

  4. LOL!! You mean that Obama won’t make a decision on the pipeline because he’s coming up to an election year.

  5. I agree about him being on the campaign trail, but I’m also glad he’s waiting until the study comes back. All these new drilling techniques and projects scare me until they’re researched better.

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