Below is article from Money Watch outlining the bill passed by both Houses of Congress on New Year's Day. Are your taxes going to go up? Probably. Social Security tax goes up from 4.2% to 6.2%. Also taxes on capital gains and dividends increases from 15% to 20%. Did everything get fixed? Nope. Are there still issues to be addressed? You betcha. Did Congress push off issues so they could argue later? Of course. Will there be a a lot of back-slapping in Washington? Yes. Will there be a lot of back-slapping among the general population? I do not see why there would be. Will it effect the way you live? If you live paycheck to paycheck it probably will. If not, it probably will not. That is OK because I still think democracy beats the alternative.
The article is in italics and most of the bold is my emphasis. From Money Watch:
The Senate passed a deal to address the so-called "fiscal cliff" 90 minutes after the midnight deadline by a vote of 89 to 8. The bill then moved to the House of Representatives, which passed the measure 257-167 late Tuesday night.
In addition to the tax changes, the Senate and House agreed to a two-month delay in addressing $110 billion in government spending cuts (aka the "sequester"), which were due to go into effect Jan. 2. Some government agencies had already made arrangements to comply with the cuts, not knowing whether or not a deal would occur.
The plan would raise roughly $600 billion in taxes over 10 years, far less than the more than $2 trillion in revenue initially discussed by President Barack Obama and House Speaker John Boehner.
According to CBS News White House correspondent Mark Knoller, the Congressional Budget Office scoring of the bill projects a $329 billion increase in deficit in 2013; $3.9 trillion over 10 years.
All wage-earners: For the past two tax years, 160 million American employees' contributions to the Social Security program was 4.2 percent, down from 6.2 percent (this comes on the FICA line item of a paystub) on earnings up to $110,100 in 2012 and on earnings up to $113,700 in 2013. Despite legislative back-slapping about "preventing tax increases for the middle class", the average U.S. household that earns $50,000, will pay an extra $1,000 in taxes in 2013. For an individual earning the maximum 2013 cap of $113,700 or more, the increase would be $2,274, or nearly $200 per month.
Just before midnight, the Internal Revenue Service issued new withholding tables for 2013 reflecting the expiration of the 2001-3 tax cuts and the two-percentage point Social Security tax cut, but the IRS noted that the tables might change given pending legislation.
Annual income up to $113,700
Cost to individuals: 2 percent of income to a maximum of $2,274
Average HH cost (50K/yr): $1,000
When will impact be felt?: Up to 4 weeks after bill is passed
Wealthy earners: Individuals who earn more than $400,000 and couples who make more than $450,000 will see tax rates increase from 35 to 39.6 percent. Those income levels are up from Mr. Obama's levels of $200,000 and $250,000 and down from Boehner's $1,000,000 proposed threshold. Capital gains and dividends will rise to 20 percent from the current 15 percent for the same income thresholds. In addition to the capital gain and dividend rates, health care reform will levy a new surtax of 3.8 percent on capital gains for wealthy Americans, pushing up the top capital gains rate to 23.8 percent.
The Personal Exemption Phaseout (PEP) and the itemized deduction limit are set at $250,000 for singles and $300,000 for joint filers. These rules are meant to reduce or eliminate the value of personal exemptions for taxpayers earning more than the income threshold. The effect of the reinstatement of the limits amounts would increase taxes by just over 1 percent to the top tax rate as well as on capital gains rates.
What's wealthy? The bill does not say whether the $400K/$450,000 threshold refers to adjusted gross income (AGI) or taxable income. AGI doesn't include subtractions for itemized deductions, while taxable income does.
Marginal tax bracket: Rises to 39.6% from 35%
Capital gains rate and dividend tax rate: Rises to 20% from 15%
Total capital gains and dividend rate for 2013, including ACA sur-tax: 23.8%
PEP/Itemized deduction limits: $250,000 for singles and $300,000 for joint filers
Long-term unemployment benefits: At the beginning of the Great Recession, Congress enacted a temporary supplement to state-based unemployment insurance programs, which usually pay benefits for 6 months. The measure will be extended for one year, preserving benefits for 2 million Americans who were at risk for losing benefits at year-end.
Tax credits for low to middle wage earners: Among these provisions are the Child Tax Credit, the Earned Income Tax Credit and the Obama Opportunity Tax Credit (college tuition credits), deductions for $250 of teachers' classroom expenses; allowance of taxpayers to choose paying state sales taxes in lieu of state income taxes; a conservation donation benefit; and the direct charitable contribution of up to $100,000 of IRA assets for people 70 1/2 and older will all be extended for five more years.
Of these credits, the following are seen as the most valuable to low to middle wage earners:
-- The Child Tax Credit is up to $1,000 for each qualifying child who was under the age of 17 at the end of 2012. This credit can be claimed in addition to the credit for child and dependent care expenses, but phases out for married couples who earn over $110,000 and single filers who earn more than $75,000. (Details are in IRS Publication 972.)
-- The Child and Dependent Care Credit is available if you pay someone to care for your dependent who is under age 13, so that you can work or look for a job. The credit is 20 to 35 percent of your child-care expenses up to $6,000 -- the size of your credit depends on your income. This credit will be reduced significantly next year. (Details are in IRS Publication 503.)
-- The Earned Income Tax Credit is a refundable credit for married couples filing jointly with 2012 earned income under $50,270 and singles who made less than $45,060. The more children you have, the more money you receive. Your income and family size determine the amount of the credit, but the maximum credit is $5,891 this year. The income thresholds for this credit have increased over the past decade, and the maximum credit has increased since the recession. Next year, both phaseout limits and credit amounts will revert back to lower levels. (Details are in IRS Publication 596.)
-- The American Opportunity Tax Credit was set to expire at the end of 2010, but was then extended for an additional two years through December 2012 by the Tax Relief and Job Creation Act of 2010. The new credit makes the Hope Credit for higher education expenses available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. The full maximum annual credit of $2,500 per student is available to individuals, whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels.
Alternative Minimum Tax (AMT): AMT was created in 1969 to ensure that wealthy taxpayers pay at least some minimum amount of federal income tax, regardless of deductions, credits or exemptions. In essence, it is a flat tax with two brackets, 26 percent and 28 percent. Under the new deal, Congress has finally created a permanent inflation "patch" that would allow millions to escape AMT. Without the patch, the AMT would have hit 31 million taxpayers this year, reaching deeply into the middle class.
Certain business tax credits: There would be a one year extension of Research and Experimentation Tax Credit and Production Tax Credit and an extension of the 50 percent bonus depreciation rules, applicable to a wide variety of property and equipment, excluding real estate.
Medicare payments to doctors: Congress agreed to a one year extension of current Medicare reimbursement rates, shielding participating doctors from a potential 27 percent cut in reimbursements.
Even with a deal in place to avoid the cliff, however, the political debate over deficit-reduction is certain to continue. The U.S. Treasury Department notified Congress that the country hit its legal borrowing limit of $16.39 trillion -- the so-called "debt ceiling" -- on the last day of 2012. That could set the stage for a replay of the 2011 political brouhaha over government borrowing that, in putting off the toughest decisions on fiscal policy, led the U.S. to the edge of the fiscal cliff.