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Tax News - January 14th, 2013We keep you informed about the tax laws that affect your current AND future tax circumstances.
Fiscal Cliff PARTIALLY Averted for Current Tax PayersSOME of the "Fiscal Cliff" tax increases on the middle class have been averted! On January 2nd, 2013, President Obama signed the American Taxpayer Relief Act (ATRA) into law. Any income you earned under $400,000 for singles ($450,000 for married filing jointly), will see the same rates they are used to, from the "Bush Era Tax Cuts." For income in this group, it also includes extending the rates on capital gains and dividends.
All income above that negotiated number will see an income tax rate increase of 4.6% (from 35% to 39.6%). So any earnings over $450,000 for a family will now be taxed at 39.6%. The rates on this income bracket also see an increase on long term capital gains and dividends from 15% to 20%, respectively.
These rates have also all become permanent as a result of the compromise!
Other compromises that were built into the Fiscal Cliff Bill include:
- Estate Tax (permanent): The first $5,000,000 of an estate's worth (including home and business) is exempt from taxes. Anything over that number will see an increase from 35% to 40%.
- Child Tax Credit (temporary - through 2017): The child tax credit of $1,000 remains intact.
- Earned Income Tax Credit (temporary - through 2017): Some main provisions are extended.
- Education Tax Credits (temporary - through 2017): Some main provisions are extended.
- American Opportunity Tax Credit (temporary - through 2017): This credit was extended.
Everyone's Taxes are STILL going up! IMMEDIATELY!As part of most American's government retirement plan, they are obligated to pay 12.4% of the first $106,500 of their income. Your employer is obligated to pay half of the 12.4%, and you are obligated to pay the other half. Each then pays 6.2% as part of the Social Security Payroll Tax. This 6.2% comes out of everyone's check, and can also be called the FICA tax. If you are self-employed, you are obligated to pay the entire 12.4%.
In 2010, Congress passed a bill that reduced the employees half of this tax from 6.2%, down to 4.2% (a 2% decrease). This 2% was immediately added back into income earners paychecks. For someone making $50,000, that is $1,000 added to your checks!
Well, the bad news for all current income earners is that this bill was NOT extended. Everyone goes back to paying 6.2%, and this happens immediately. Everyone will see a decrease of 2% in their paycheck starting January 1st!
The ATRA also addressed several issues including unemployment, Medicare, farming, and other health provisions.