Thursday, January 17, 2013

Fiscal Cliff Results

My first blog post consisted of what might happen with the fiscal cliff. This is a follow up as to what happened with the issues brought up in that post.

It is very obvious that the tax changes were meant to place the burden on the wealthy, but the ironic part is all the talk about "simplifying the tax code" isn't happening. In fact this new set of laws just made taxes a tad more complicated. More particularly with the new capital gains rates for taxpayers whose incomes are >200K  (>250K Married Filing Jointly) which now involves an additional 3.8% medicare surtax on top of the new 20% capital gains.

For simplicity sake, I would just like to discuss changes I mentioned in the previous blog:

-Payroll Tax - the 4.2% tax holiday is over. If you haven't noticed already, its now 6.2% and your paychecks are 2% smaller than they used to be.
Negative Impact: All working taxpayers

-Tax Rates - The good news is, not much has changed for the average american. Tax rates were adjusted for inflation (as they always are) and as long as you aren't making more than 400K (450K Married Filing Jointly) your tax bracket hasn't changed much since last year. (see the table below)
Positive Impact: Taxpayers with income less than 400K/450K
Negative Impact: Taxpayers with income more than 400K/450K

-Standard Deduction for Married filing jointly taxpayers keep their preferred standard deduction. It was adjusted for inflation from $11,900 to $12,200.
Positive Impact: Married taxpayers

-Married filing jointly 15% bracket will (NOT!) shrink
Positive Impact: Married taxpayers

-Child tax credit the maximum will remain at $1000 (when they were set to drop to $500)
Positive Impact: Lower income taxpayers with children

-Medical expenses will be more difficult to deduct (7.5% floor reverts to 10% floor)
Negative Impact: taxpayers who itemize deductions and have crazy medical bills

Dependent care expenes credit - the maximum credit remains at 3,000 per child or 6,000 per family.
Positive Impact: Lower income taxpayers with children

Earned Income Tax Credit (EITC) - We get to keep this credit, but additional credit amounts for a 3rd child is no longer available.
Positive Impact: Taxpayers 25 years of age, lower income, working get to keep this.
Negative Impact: Taxpayers with 3+ kids will get less than before.

Education Credits Extended -  the credit (up to $2500) to subsidize our tuition is extended.
Positive Impact: All students (or parents with dependent students)

2013 Tax Rates:

Tax BracketsMarginal Rate
Single   Married
OverBut Not Over   OverBut Not Over20122013
$0 $8,925    $0 $17,850 10%10%
8,92536,250   17,85072,50015%15%
36,25087,850   72,500146,40025%25%
87,850183,250   146,400223,05028%28%
183,250398,350   223,050398,35033%33%
398,350400,000   398,350450,00035%35%
more than 400K or 450K is subject to the new 39.6% tax bracket.