The Fiscal Cliff deal will likely affect every taxpayer. Below are the effects it could have on your taxes:
1. Payroll Taxes: Wage earners will pay 6.2% in payroll tax on their first $113,700 in wages as opposed to the 4.2% rate that has been the payroll tax rate for the past two years.
2. Tax Rates: Individual taxes are going up for filers with incomes above $400,000 and couples above $450,000. Upper class taxpayers will pay 39.6% above the threshold. In the past, they paid 35% since 2001.
3. Investment Taxes: Capital gains and dividend tax rates for filers earning more than $400,000 or $450,000 for couples will increase from 15% to 20%. Taxpayers in the lowest bracket will pay 0% and all others will pay 15%.
4. Family Tax Breaks: President Obama’s Recovery Act has been extended for five years including:
a. American Opportunity Tax Credit: a partially refundable credit of up to $2,500 per year for four years for low-income families.
b. Child Tax Credit: Low-income parents can claim as much as $1,000 per child under 17.
c. Earned Income Tax Credit: provides a credit for working American with low- and moderate-incomes.
d. Expanded Dependent Care Credit: allows certain taxpayers to deduct up to 35% of expenses to a max of $6,000 for two children (permanently extended).
5. Itemized Deductions/Personal Exemption: Taxpayers who make $250,000 and above and couples who make $300,000 and above will soon be limited with the personal exemptions and itemized deductions they can take.
6. Alternative Minimum Tax: The income exemption level will be permanently adjusted for inflation.
7. Estate Taxes: The estate tax exemption will remain at $5.12 million and will be indexed to inflation going forward.
8. Marriage Penalty: Married couples will continue to receive a deduction that is twice that of individuals and income ranges for the 10% and 15% tax brackets are also doubled.
9. Debt Forgiveness: Homeowners who receive principal forgiveness or go through a short sale or foreclosure will not have to pay tax on the amount of debt forgiven. This will extend for one year.
10. Tax Breaks: Filers can continue to deduct state and local sales taxes. This deal extends to a bevy of tax breaks.
To read more on this story visit: http://economy.money.cnn.com/2013/01/02/taxes-fiscal-cliff/?iid=SF_PF_River
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