What The Tax Cut Extension Means for You

Dec. 17, 2010 — -- When President Obama officially extended tax cuts enacted by his predecessor in a Rose Garden ceremony today, he ensured the average American will pay about $2,000 less in taxes per year for the next two years.

That figure includes a temporary holiday on the payroll tax, which helps fund Social Security.

The tax cut extension means big bucks for the super-rich. LeBron James, who makes $14.5 million each year, will save more than $600,000 in taxes for this year. A family making $100,000 per year will pay about $6,000 less in taxes than if the tax cuts had expired. The average savings for all Americans, according to the non-partisan Tax Policy Center, is about $2,800.

The deal, hatched between the White House and congressional Republicans and passed by Congress this week despite opposition from liberals and conservatives, will also extend unemployment benefits for the next two years.

To figure out how the tax deal will affect you personally, plug your income into mytaxburden.org.

To get enough votes, Senate leaders added some unrelated incentives, including special tax incentives for rum producers and NASCAR, among others. Read more about those HERE.

While Americans will have less money taken out of their paychecks by Uncle Sam the next two years, the tax compromise will result in lost revenue to the government of between $450 and $600 billion in 2011. That will be added to the nation's $13.8 trilllion deficit.

Families:

Workers:

Impact: For example, a worker who makes $40,000 annually would pay $800 less in Social Security taxes and a worker who earns $70,000 would pay $1,400 less.

And economists say that the reduction of the payroll tax is particularly helpful in stimulating the economy. Every American will pay 2 percent less in tax, on the first $106,000 they make.