What was that fiscal cliff all about
How exercise? cliff "fix" affects you
last year we have heard a lot about the so-called "fiscal cliff" - a combination of spending cuts and tax increases that will take effect automatically unless that the parties in Washington have come to a compromise.
scenario was bleak.
If the politicians do not work something, automatic spending cuts and tax increases set could have sent our still faltering economy figuratively on board.
What happened?
person (well, almost) wanted to go on the fiscal cliff. The predictable politicians made concessions just in the nick of time, and disaster was averted.
The legislation that resulted is known as the American Taxpayer Relief Act (ATRA).
This is what is in the budget amendment in the cliff:
- the end of the temporary tax reduction on payroll social security. Since 2010, the share of employees paid social security taxes withheld from paychecks was 4.2%. If your check looks smaller since Christmas, it's because you're contributing 6.2% of your salary to social security, instead. It's only a difference of 2% of your salary, but if you are on a tight budget, you will feel the difference.
- Reintegrating "Bush tax cuts". Without an agreement, taxpayers would have lost a long list of tax breaks, adoption credits liberalized to expanded education credits. Many of the expired effective breaks in 2012 but were reinstated retroactively.
- Higher taxes for high-income taxpayers. If your taxable income exceeds $ 400,000 (450,000 if you are filing jointly $) your top tax rate will be higher in 2013 - as high as 39.6%. Your marginal tax rate on dividends and long-term capital gains increased by 15% to 20%. (For most taxpayers, the highest rate on dividends and long-term capital gains is still 15%.) High-income taxpayers will also find their limited exemptions and deductions, from 2013.
- other changes, including a permanent solution to the problem of the minimum tax replacement and extension of a number of tax breaks for businesses.
How does this affect me?
Other than decreasing your net salary from the end of the reduction of tax on temporary wages, your employer calculated for you, you probably will not notice anything different.
If your income is in the older ages, you will pay more tax than you would have without the tax increases.
However, change is not nearly as radical as it would have been without the 'fix'.
what should I do?
If you are self-employed and you make estimated quarterly tax payments, make sure you set aside enough money to cover the additional 2% of the tax on social security.
Similarly, if you are a high-income taxpayer, you must ensure that you have enough money withheld or make estimated tax payments sufficient to cover your tax debt.
The schedules tax withholding have changed to reflect the new rates, so your employer should take over your check. However, it is always a good idea to check.
Otherwise, the big news is that very little is new.
Have you noticed the reduction of temporary payroll tax more when it was first set up and your salary got a boost, or when it was removed and your salary net descended
photo credit: larskflem via photopin cc
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