If you listen to the news at all, you have undoubtedly heard about the looming fiscal cliff that our country has been running towards at full speed. If you happened to catch the news the morning of January 2, 2013, you would have been informed that congress had struck a deal, the President signed it, and the cliff was avoided. A speech was given in the wee hours of the morning indicating that 98% of Americans would avoid an increase in their taxes, but this does not tell the whole story.
An initial analysis done by the Tax Policy Center, which is a nonpartisan Washington research group, estimated that approximately 77% of American households will see higher taxes in 2013. This is mostly due to the fact that the deal struck by congress does not address the 2% increase in payroll taxes that are scheduled to occur. Beginning January 1, 2013, payroll tax rates for the employee’s share of Social Security and Medicare will increase from 4.2% back to the 6.2% rates from 2010. It is estimated that this increase in payroll taxes is worth about $1,000 to a person making $50,000 a year.
Additional tax increases related to the deal will be seen by individuals making more than $400,000 and couples making more than $450,000 by means of increasing the maximum tax bracket for these people from 35% to 39.6%. Additionally, due to the 2010 health care law, a new 3.8% tax will be imposed on investment income for individuals making more than $200,000 and couples making more than $250,000 a year.
For more information on how your tax return is going to be affected, please give us a call.
/Kenny Keener