But there's a price tag: The payroll tax holiday has ended for all workers, and higher-income people will bear a heavier tax burden.
Many people might be surprised when they look at their paychecks this month, scratch their heads and wonder why their take-home pay is less.
For the past two years, the employee's share of Social Security taxes was reduced from 6.2 per cent to 4.2 per cent as the country struggled to emerge from recession. But that 2 per cent payroll tax holiday expired at the end of 2012 and was not renewed by Congress. That means workers earning $50,000 a year will pay an extra $1,000 in Social Security taxes in 2013. As income goes up, so does the tax bite.
And that can add up quickly, said Kathy Pickering, executive director of H & R Block's Tax Institute.
Social Security taxes are deducted on all income up to $113,700.
President Barack Obama signed legislation in early January to prevent the country from going over the fiscal cliff and immediate sequestration — mandatory spending cuts across the federal government. Also at issue were the tax rates set in 2001, when George W. Bush was president. Those lower rates were scheduled to expire at the end of 2012.
Throughout the negotiations with Congress, Obama had argued that wealthy people should pay more in taxes. They will, under the measure.
"Millionaires and billionaires will pay their fair share to reduce the deficit through a combination of permanent tax increases and reduced tax benefits," the White House said in a fact sheet after the legislation was passed.
"The changes that affect this year and beyond affect mostly higher-income taxpayers or the more affluent," said Bob Meighan, a vice-president at TurboTaxe, the tax software preparation company. "They will be facing higher tax rates. Not only that, they will also be facing limitations with regard to the writeoffs."
The fiscal cliff legislation established a new top tax rate of 39.6 per cent for individuals whose taxable income is more than $400,000 a year and for married taxpayers filing jointly whose taxable income is more than $450,000. For those earning less, the tax rates range from 10 per cent to 35 per cent, depending on income.
Wealthier people also will see the value of their deductions and exemptions reduced.
The phaseout of deductions and exemptions for higher-income taxpayers is not a new concept, but it had been suspended as part of the effort to stimulate the economy.
In 2013, the personal exemption for each dependent will be $3,900, up from $3,800 in 2012, the Internal Revenue Service said. But with the phaseout, which begins at $250,000 for individuals and $300,000 for married couples filing jointly, the exemptions will be worth less for wealthier Americans in reducing tax liability.
The same holds true for them when it comes to charitable contributions, the interest you pay on your mortgage and other deductions.
Also at those higher income levels, the top rate for capital gains from the sale of those assets held more than a year, rises to 20 per cent. For those earning less, the capital gains rates remain at 0 per cent and 15 per cent, the top rate in 2012. And the tax rate on the biggest estates is rising to 40 per cent.
And for the wealthiest estates, the exclusion amount, which the IRS defines as "the total amount exempted from gift and-or estate taxes," rises to $5,250,000. Married couples can effectively double the exclusion with proper estate planning.
Meanwhile, middle-income taxpayers might get "a sense of relief" that the alternative minimum tax has been patched permanently, said Mark Steber, chief tax officer with Jackson Hewitt Tax Services. The tax had threatened to swallow up more middle-income taxpayers. Going forward, it will be indexed to inflation. In 2013, the exemption amount is $51,900 for individuals and $80,800 for married couples filing jointly.
But what's permanent?
"I'm not so confident how long permanent is when you hear so much discussion on comprehensive tax reform and tax simplification," Steber said.
The IRS set the earned income tax credit this year at $6,044 for families with three or more children. That's a $153 increase from 2012.
The fiscal cliff bill extended tax deductions and credits that were due to expire for the most part, some for as long as five years. "And equally important, they were passed as they were last year," he said. "On one hand, they are the same so taxpayers will understand them."
Among them: the tuition and fees deduction that allows college students or their parents to deduction college tuition and fees up to $4,000. Elementary and secondary teachers can deduct up to $250 for out-of-pocket expenses for things for their classroom. The maximum $500 energy credit also was extended.
And for parents with children, the $1,000 child tax credit is permanent.
Many of the credits and deductions phase out for wealthier taxpayers.
For 2013, deductible mileage rates increased to 56.5 cents per mile for business, 24 cents per mile for medical or moving reasons and 14 cents for charitable purposes.