NASHVILLE, Tenn. (AP/NewsChannel5)- While the tax package that Congress passed New Year's Day will protect most Americans from an income tax increase, most will still end up paying more federal taxes in 2013.
In 2010 Congress cut the social security tax on paychecks by two percent. On January 1st that tax cut expired. For most Americans this means that in the next couple of weeks they will see a smaller paycheck.
Households making between $40,000 and $50,000 will face an average tax increase of $579 in 2013, according to the Tax Policy Center's analysis. Households making between $50,000 and $75,000 will face an average tax increase of $822.
Financial guru Dave Ramsey said the best way for families to prepare for the tax increase and subsequent smaller paychecks is to get out of debt and set up a rainy day fund of 3 to 6 months of expenses.
"Me and my family. We're the only variable I can control," explained Ramsey. "We're going to be on a budget. We're going to live on less than we make. We're going to get out of debt, and we're always going to save and invest. Those are the basics. We know them but boy implementing them doing them on a day to day basis is tough,"
The tax hike could have been significantly worse had the country gone over the fiscal cliff. The current agreement allows families who make less than $400,000 to still use the tax cuts enacted under former President George W. Bush in 2001.
The Bush-era tax cuts lowered taxes for families at every income level, reduced investment taxes and the estate tax, and enhanced a number of tax credits, including a $1,000-per-child credit
People who make more than $400,000 will see the biggest impact on their federal taxes. Their rate will rise from 35 to 39.6 percent. Those individuals will also see capital gains and dividends tax rates return to 20 percent from 15 percent.
Ramsey's advice for these households is the same.
"I've got to deal with my own fiscal cliff and get out of debt and build enough wealth to offset the craziness," he said.
Together, the new tax package and Obama's health care law will produce significant tax increases for many high-income families.