Are 2013 tax increases coming your way? Very possibly. And it’s all because of the potential “fiscal cliff” we’re rushing towards.
The Obama Administration and Congress are trying hard to keep our economy from falling off this “fiscal cliff”. You probably hope they are successful. That’s because if D.C. doesn’t come up with a budget solution by January 1st your income tax liability might rise significantly.
If taxes do go up, many people think that the increased load will fall only on people earning $250,000 or more. As you‘ll see, that isn’t exactly the case. Come January 1st, many of the Bush tax cuts are scheduled to expire. And those cuts didn’t just help rich people. Many of those regulations were important for middle-class and lower-income people too. Let’s take a look at what might take place and how that might impact you.
AMT stands for Alternative Minimum Tax. This was originally set up in the late 60’s to make sure rich people couldn’t use loop holes in the tax code to escape paying taxes. It set up a minimum tax they would have to pay despite various deductions they could otherwise claim. It may have been a good idea 50 years ago, but it’s not really doing the job now.
That’s because you don’t have to be rich anymore in order to be subject to AMT. And if you are one of the unlucky people subject to the Alternative Minimum Tax you’ll absolutely pay more than you pay currently.
Unfortunately, the odds of that happening go up on January 1. That’s because the AMT exemption level goes back to where it was 12 years ago unless Congress acts. That’s right. Next year you’ll have to deal with AMT if you are married and earn over $45,000 a year.
If you are employed, you’ll also have to deal with higher taxes. That’s because the temporary 2% cut to SSI payroll taxes paid by employees goes away. That means all working people are going to take home less pay.
Many tax credits that were targeted to help the lower-income tax payers are slated to expire next year.
Changes to reduce the marriage penalty and the creation of the 10% tax bracket are on the chopping block too. This will really hurt low-income people because they are the folks who benefit the most from these regulations now.
To top it off, the standard deduction for married tax filers will be decreased. You don’t have to be rich to feel that pain.
According to the Tax Foundation, the typical American family is going to have to find a way to cough up an additional $3222 in taxes every year if these changes are instituted. The foundation based this projection on a family that has two children and an income of $74,563. It’s interesting to note that this adds up to 4.3% of this family’s income – that’s quite a hit.
Of course a lot can happen between now and New Year’s Day. I don’t think it’s wise to make big changes in anticipation of the potential “fiscal cliff” we are heading towards. It does make sense to be aware of this however.
Are you doing anything different because of the potential changes in tax law?