Tax Foundation, Obama’s Tax Compromise and its Effects on Low-Income Taxpayers:

With both the Bush-era tax cuts and stimulus tax cuts set to expire at the end of this year, Congress has been vigorously debating the future of federal tax policy. There has been little agreement on which cuts to extend, whom to extend them for, and for how long. Most Democrats would like to see only the Bush-era tax cuts on income under $250,000 for families (and $200,000 for single filers) extended, some Democrats would like to see all of the Bush-era tax cuts expire, and Republicans would like to see all of them extended permanently. There is also the question of what to do with the temporary tax cuts enacted in 2009 as part of the stimulus bill, which included a refundable tax credit worth up to $800 for working families, as well as expansions of the child tax credit, the earned income credit, and the credit for college tuition.

Recently, President Obama and Senate Republicans agreed on a compromise plan, where all of the Bush tax cuts and nearly all of the stimulus bill tax cuts are extended for two years. The one stimulus cut that is not extended is the refundable $800 credit ($400 for single filers) known as Making Work Pay, but this is replaced by a cut in the employee portion of the Social Security payroll tax from 6.2% of wages to 4.2%. 

By contrast, the earlier plan that had been supported by most Republicans, the Tax Hike Prevention Act of 2010, extended all the Bush tax cuts but none of the stimulus cuts, and did not include any change to payroll taxes. The bill that recently passed through the House, supported by most Democrats, extended the Bush tax cuts for all but high-income earners.  It extended some stimulus cuts but let others expire. Notably, it let the Making Work Pay credit expire, as well as the expansion of the credit for college tuition. The expansion of the earned income credit would have partially expired as well. This bill also does not include any cut in payroll taxes, which is an entirely new proposal found only in the compromise plan.

The compromise proposal has sparked considerable debate. … The compromise between Senate Republicans and the President produces a much lower tax bill (or a higher tax refund) for low-income workers.  Despite not being quite as generous as current 2010 tax law in very low-income cases, below $40,000 for married filers and $20,000 for single filers, it remains a better deal than the GOP or the Democratic bills proposed in Congress.