Crisis averted. That’s the word from Congress and the President talking about the fiscal cliff. The bill was signed into law by President Barack Obama last night, but the news is not all good for you the taxpayer.
It’s been interesting to hear the responses to the fiscal cliff over the past couple of days. Relief has been the main reaction from most Americans. But, taxes are still going up on everyone to the tune of about a thousand bucks a year. Still, the situation could have been much worse.
The House gavel on Tuesday night was supposed to signify a major crisis averted, the passage of the fiscal cliff bill. President Barack Obama autosigned the bill into law last night. However, the news is not all good for you the taxpayer.
“[The] social security tax is now going up to the statutory rate,” said H & R Block Tax Preparer Jim Geswein.
That statutory rate will cost you about two percent of your income a year. For the past two years, a payroll tax holiday has dropped the social security rate from 6.2 percent to 4.2 percent. But that holiday will expire with the Fiscal Cliff Bill of 2013.
“For me that’s [the money is] a cable bill, it’s going out to eat, you know once a week. It’s real money going out the window,” said Geswein.
That real money is going to cost the average American family that earns $50,000 a year, about a thousand bucks a year. An average of that one thousand dollars equals about $18 a week or $36 each biweekly paycheck.
“Everyone who works, people pay payroll tax up to $113,700 of income so those that make a dollar to 113 they’re going to pay 2 percent more than they paid last year,” said Financial Planner Altair Gobo.
While you will pay more in payroll taxes, many Americans will benefit from the expansion of the Alternative Minimum Tax. Congress decided to include inflation in the AMT which meant about 29 million new middle class Americans avoid paying extra. Right now, four million Americans pay the AMT. Those avoiding the AMT will still be able to deduct certain things from their taxes and pay less at the end of the year.
The situation could have been much worse if the Fiscal Cliff bill did not pass. The average American family faced the prospect of paying $2,200 to $3,500 more each year.
Here is a list of benefits and tax credits that were extended:
-The bill extended unemployment benefits another year avoiding the immediate dropping of benefits for over two million unemployed.
-The $1,000 child tax credit was extended instead of dropping to $500 for each child.
-The $2,500 college tuition credit was extended.
-The daycare expense credit of $3,000 per child was extended.
Even after weeks of wrangling, the fiscal cliff talks are far from over. While the so-called cliff was averted, the decisions about major spending cuts were put off for another couple of months. Combine talks about spending cuts along with debt ceiling negotiations which need to happen by February and it could be another ugly few months in DC.