Streams

What the Fiscal Cliff Deal Means for You

Thursday, January 03, 2013

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!

 

Comments [8]

ntt2

Did noone answer the question regarding retirement checks?

Jan. 03 2013 12:45 PM
RUCB_Alum from Central New Jersey

The key there BL is 'everyone who draws a paycheck'...Lots of folks don't draw a check...trust fund babies, hedge fund managers, etc. And then there are those for whom the $113K limit is reached before January is over...pro athletes, movie stars, etc.

I'll stick to lower rates for everyone but cut-offs at 5 times median.

Jan. 03 2013 10:50 AM
C.E. Connelly from Manhattan

No, no, not if the caller is marrying a man. DOMA. You can't file federal taxes as married for same-sex marriages.

Jan. 03 2013 10:40 AM
The Truth from Becky

Ohhh woe is you....household income of $650k if you get married...what about my charitable (loop holds) deductions...puhleese.

Jan. 03 2013 10:39 AM
Amy from Manhattan

On the payroll tax, what about freelancers? We don't get payroll deductions, but we do have to pay quarterly estimated tax.

Jan. 03 2013 10:38 AM
tp

"...an effective decrease in income..." It is not "income"; it is insurance... until you can get a job, but it sounds like you're planning to be unemployed until the govt cuts you off. Not encouraging.

Jan. 03 2013 10:33 AM
josh Karan from Washington Heights, NY

This fiscal cliff legislation seems to have left those of us of low - moderate income who are collecting extended unemployment insurance without the ability to continue to do so because the New York State unemployment rate is too low to qualify for those extended benefits.

So instead of approximately 47 weeks of eligibility, i, and others like me limited to 26 weeks --- an effective decrease in income of 6000 to 8000 dollars.

Compare this to the tax increase on those making $ 250,000.

Our NY Senators seem to have deserted us.

Jan. 03 2013 10:15 AM
Jf from Ny

If we were smart sentient beings we would go back to the 1962 tax rate of 91% for the super rich. Free college, free health care, green jobs and paid internships as another option For unemploymennt as well as government subsidies for artists and help to start small businesses. Utopia.

Jan. 03 2013 10:08 AM

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