The last-minute fiscal cliff deal reforms tax rates, deductions, payroll taxes, and several other laws that will effect more than 3/4 of Americans in one way or another. Got a specific question about how the deal will impact you? Add it to the comments. Richard Rubin of Bloomberg News will try to answer them on Thursday's show.
What We Learned from Richard Rubin (Other than "Talk To Your Accountant")
→ If you're filling out your taxes right now, don't worry. This all has to do with your 2013 tax rates.
→ But, you will start to see the 2% hike in payroll taxes taken out of your first 2013 paycheck as the "payroll tax holiday" expires. (And, to clarify a caller's question, pension checks are not subject to Social Security deductions.)
→ Deduction Changes: These start taking effect on adjusted growth income of $250,00 (or $300,000 for joint filings). To calculate, subtract 3 percent of the amount by which your adjusted gross income exceeds $250,000 to calculate the total deduction. Richard Rubin says "Unlike the personal exemption changes, this really hits the entirety of the income scale, all the way up the ladder." Personal
→ Exemption Changes: Everyone gets a personal exemption, which lowers their taxable income. But now, for higher-end earners, some of that gets clawed back. The new law will reduce the amount of exemptions by 2 percent for every $2,500 by which their income exceeds the $250,000 or $300,000 limit.
→ Alternative Minimum Tax: "This bill is really good news for those threatened by the AMT, because the income levels at the AMT had never been indexed for inflation. Now they are permanently so." 4,000,000 households are subject to the AMT. Had we gone over the cliff, 32 million households would be threatened. The bad news: many of those households are in high tax states of New York, NJ, and CT (you can't take state taxes as a deduction under the AMT)
→ And for the caller reconsidering marriage to a wealthy spouse to save on taxes, Richard Rubin has little advice about whether love triumphs over tax deductions!