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Higher tax rate will hit relatively few in Oklahoma, but payroll tax is rising for 1.9 million workers

The deal reached to avoid the automatic income tax increases doesn't include continuation of the two-year cut in the tax that funds Social Security
by Chris Casteel Published: January 2, 2013

The “fiscal cliff” deal supported by most of the Oklahomans in Congress will mean higher income tax rates for only a small percentage of Oklahoma taxpayers, though nearly 2 million workers in the state will have smaller paychecks because of an expiring tax cut that wasn't part of the negotiations.

The deal approved by Congress late Tuesday calls for higher tax rates on individual income above $400,000 and family income above $450,000. Taxpayers with that level of income will also pay a higher rate on capital gains and dividends.

Read: Compromise is welcomed by investors worldwide

Internal Revenue Service figures available for the 2010 tax year do not provide a breakdown for Oklahoma incomes at those specific thresholds. However, the figures show there were 7,231 Oklahoma households with adjusted gross incomes above $500,000 in 2010. That is out of nearly 1.6 million returns filed in Oklahoma that year.

Most Oklahomans were shielded from higher income tax rates, and thousands of low-income and middle-class families will still be able to claim refundable credits for dependents and college expenses.

But the two-year reduction in the payroll tax — which funds Social Security — was allowed to expire with little fanfare, meaning most wage earners will have less money to spend beginning this week.

Read: Deal to have minor but immediate effect on Oklahoma's state budget

The reduction, from 6.2 percent to 4.2 percent, amounted to an annual tax break of $1,000 for a family making $50,000. The average tax cut for 1.9 million Oklahomans was $579, according to the White House. Overall, it was worth $1.1 billion in total tax relief in the state.

Reps. James Lankford, R-Oklahoma City, and Tom Cole, R-Moore, said Wednesday that extending the payroll tax cut was never part of the “fiscal cliff” negotiations about tax policy.

“It was meant to be a stimulus, so neither side contested it because you do have to fund Social Security,” Cole said.

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by Chris Casteel
Washington Bureau
Chris Casteel began working for The Oklahoman's Norman bureau in 1982 while a student at the University of Oklahoma. After covering the police beat, federal courts and the state Legislature in Oklahoma City, he moved to Washington in 1990, where...
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