Done deal! Congress sets plan for payroll taxes, unemployment insurance

They’ve been talking about it forever, but we’re this close to extending the payroll tax cut for another year. But that’s not all that will happen as soon as President Obama signs the plan just-passed by Congress.

The extension comes with a two-phase reduction in unemployment taxes.

Here’s a breakdown of what the feds have planned and what it means for Finance.

Part 1: Payroll Tax Cut Extension

First, the good news: You won’t have to make any adjustments to your payroll system. The payroll tax cut extension should be on the books well before it’s scheduled to run out on March 1.

Once the president signs (which he’s vowed to do), you will be able to let employees know you’ll continue to withhold the 4.2% you have been, instead of jacking them back up to 6.2%. And that’ll hold for the remainder of 2012.

That should make Finance popular – be sure to remind folks the payroll tax cut will give the average family an extra $1,000 in their pay this year.

Part 2: Unemployment Insurance Cuts

That money has to be made up somewhere! So Congress also decided to take an axe to unemployment benefits.

Under the new plan, the maximum number of weeks the jobless can collect unemployment benefits would be cut to 73 weeks, from the current 99 weeks (put in effect in November 2009).

And it will happen in a two-phase process:

1. If you’re located in a state will a low jobless level, you’ll see cuts this June, while
2. Other states won’t experience the cut until September.

To give you an idea how that would play out:

• If your state has an unemployment rate below 6% (like North Dakota and Vermont), people would receive a max of 40 weeks of benefits (down from the current max of 60 weeks).
• If you’re in the 6% range, ex-employees would get no more than 54 weeks. That’s a cut of as much as 32 weeks.
• If you’re located in a state around the national average (currently 8.3%), folks would get a maximum of 63 weeks. That could be a cut of as much as 36 weeks.
• If your state has an unemployment rate above 9% (including Florida, California and Nevada), people would top out at 73 weeks.

We’ll close the loop as soon as the president signs it.