Connect with us

News

What Does the Fiscal Cliff Deal Do to My Taxes?

Brandon Moseley

Published

on

By Brandon Moseley
Alabama Political Reporter

Most people who supported President Obama also supported his war on the high achievers in this country.  Polls showed consistently that his war on “millionaires and billionaires” played well with the voting public.  Of course in the real world you can’t expand government entirely on the backs of the “millionaires and billionaires” and the billions in new taxes that were passed by both Houses of Congress in the fiscal cliff deal will hit almost everyone in the country.

An estimated 77% of households in this country just got a tax increase.  Granted it is a better deal for most than going over the fiscal cliff would have been, but higher taxes will mean strained budgets and some households (whether they know it yet or not) will be pushed into bankruptcy and foreclosure due (in part) to the massive tax increase that was passed by the Senate on Monday and the House on Tuesday.

Most significant for most Americans is that the Social Security Tax Holiday that President Obama passed in his first term was allowed to sunset.  That is a 2% tax increase for low and middle wage earners and cumulatively it is a massive tax increase on the American people.  The 2013 FICA limit is $113,700 so if you make $113,700 or more your FICA tax increase was $2274, but even that part time guy at the burger place who just makes $10,000 a year and doesn’t make enough to pay federal income taxes can expect to pay $200 more in FICA taxes.

It is our understanding at press time that individuals who make more than $200,000 or $250,000 for a household will no longer be able to itemize their deductions.  For higher earners there will no longer be a tax benefit for carrying a mortgage on a big new house or donating to their Church or favorite charity this year.

In addition to the fiscal cliff deal, Obamacare starts to go into effect in 2013.

Individuals who make more than $200,000 filing individually or ($250,000) as a household will now get hit with a new 3.8% surtax on their capital gains, dividend, derivatives, and commodity trading income.   Under certain cases this would also apply to income in annuities and trusts and as of press time we are unsure as to whether or not it applies to rental income.

Advertisement

The 159 pages of new rules for just this section of Obamacare won’t be finalized until April.  Then we will have to adjust our understanding of them as tax courts make rulings on real world cases.  This new surtax will be calculated based on the MAGI (Modified Adjusted Gross Income number (line 37 on the 1040) NOT the classic taxable income number on (line 43 of a 1040).

Of course if you are in that $200,000+ for an individual or $250,000 for a household income tax bracket your Medicare payroll tax will jump from 2.9% to 3.8% starting this year and unlike FICA that does not ever cap out.

President Obama delivered on his campaign promise to make the rich pay more in taxes with his fiscal cliff deal.  Americans who make more than $400,000 in 2013 will see their income tax rate jump from a 2012 rate of 35% to a new rate of 39.6%. For joint return filers that threshold would be $450,000. The deal also raises that estate tax rate from 35% to 40%, but would keep the current estate tax threshold of $five million.

Of course the Senate still not passed any budget in over three years and the fiscal cliff deal did little to address sequestration, tax reform, entitlement reform, or balance the budget so it is very likely that more taxes will be raised through either higher rates or fewer deductions and tax credits in future legislation.

These rules are very very new are still in the process of being written in their final form and our understanding of all of them is still very limited.  For actual tax planning or estate planning advice please consult with your financial advisor, CPA, tax preparer, or money coach.

Advertisement
Advertisement

Authors

Advertisement

Facebook