On New Year's Day, Congress approved legislation to tackle year-end tax hikes and spending cuts known as the fiscal cliff. The House passed it on Tuesday after the Senate approved it earlier. While some say this is a victory for the Obama camp and a demonstration of compromise and partisanship, others question the repercussions for Americans and problems unaddressed. The following is what is included in the legislation:
- If you make more than $400,000 or your family income is $450,000 or more, expect higher taxes.
- If you make less than $400,000 or your family income is less than $450,000, taxes on capital gains and dividends remain at their current levels. Otherwise, expect an increase to 20 percent vs. 15 percent.
- Steep cuts to domestic and defense programs are delayed for two months.
- Emergency benefits for the unemployed are extended for a year. President Obama and other Democrats fought hard for this piece of the legislation.
- Scheduled payments to physicians under Medicare are delayed. Payments would have been reduced by 27 percent if not for this agreement.
- Certain parts of the farm bill have been extended for nine months. This means no spikes in costs--just yet.
- Taxpayers making over $250,000 and families making over $300,000 will not be able to make personal exemptions, and itemized deductions will be limited for taxpayers that fit in this category.
- Estate taxes increase to 40 percent from 35 percent, with the first $5 million in assets exempted.
- According to nationaljournal.com, the Alternative Minimum Tax (AMT) was levied to ensure that the wealthiest Americans paid a fair share of taxes. It was not "indexed" for inflation but was "patched" annually to prevent middle-class Americans from getting caught in its net. Under this new legislation, the AMT will be indexed or linked to inflation permanently.
- Working families will receive tax breaks. There is a five-year extension of the American Opportunity Tax Credit which can be claimed for expenses associated with college, the Child Tax Credit and the Earned Income Tax Credit. The Earned Income Tax Credit is a refundable income-tax credit for low- to moderate-income working Americans.
- Businesses will get tax breaks for research and development.
- Members of Congress will not see their pay increase.
There you have it--all that the New Year ushered in for Americans. Now is the time to speak with your Unity One Credit Union member service officer to work out a strategy to protect yourself from these changes, if necessary.