Thread: How the Fiscal Cliff May Affect Your Taxes

2013 Federal Income Tax Brackets And Marginal Rates
By Luke Landes | Forbes – Fri, Jan 18, 2013 1:55 PM EST

When you file your federal income tax return before April 2013, you're filing your 2012 taxes, and the 2012 income tax brackets define the amount of tax you owe to the government before credits and after-tax adjustments. The first paycheck or consultancy fee you earn in 2013 falls under new rules, however. The 2013 income tax brackets apply to money you earn during that year, although you may not notice how this affects you until you file your income taxes in early 2014. If you pay estimated taxes throughout the year, you may be more aware of the change in brackets.

Now that Congress has passed a new law to avoid the fiscal cliff, the American Taxpayer Relief Act of 2012, we have a better picture of the marginal tax rates for 2013 ahead of the official announcement from the IRS. With the changes to the top tax bracket set by the law and the remaining brackets adjusted by inflation with help from The Tax Foundation, this article includes the likely tax scenario.

In 2013, the Bush-era tax cuts have been extended -- made "permanent" -- for all taxpayers but the highest tax bracket. This is similar to one of the scenarios predicted earlier, but the question up until the last minute has been at what income level would the older, higher top marginal tax rate be effective.

Republicans wanted this number to be high, where the top tax rate would affect only those taxpayers earning over $1,000,000, while President Obama was aiming for the top tax rate to affect more taxpayers, including those earning over $200,000 or $250,000. The Congress settled on a compromise of $400,000 for taxpayers filing single as the threshold for the top tax rate, which is very close to what the top tax bracket would have been anyway, due to inflation.

As a result, these are the tax rates you can expect in 2013.


Rate ---- Single Filers ----------- Married Joint Filers ------- Head of Household Filers
10% -- $0 to $8,925 ------ ----- $0 to $17,850 --- ---------- $0 to $12,750
15% --- $8,925 to $36,250 ----- $17,850 to $72,500 -------- $12,750 to $48,600
25% --- $36,250 to $87,850 - -- $72,500 to $146,400 ------- $48,600 to $125,450
28% ---- $87,850 to $183,250 -- $146,400 to $223,050 ----- $125,450 to $203,150
33% ---- $183,250 to $398,350--$223,050 to $398,350 ------ $203,150 to $398,350
35%----- $398,350 to $400,000--$398,350 to $450,000 -------$398,350 to $425,000
39.6%--- $400,000 and up -------$450,000 and up--------------$425,000 and up

Keep in mind that the tax rates listed in these tables are marginal rates. That means that you do not owe your rate on all of your income. For example, if you single, you earn $100,000 per year, you would not owe 28% on all of your income -- you would not owe $28,000 to the federal government. You would owe 10% of $8,925, 15% of $27,325 (the difference between the top and the threshold of the second tax bracket), 25% of $51,600, and 28% of $12,150 (the difference between your income and the threshold of the third tax bracket).

That calculation results in $21,293, or an effective (not marginal) tax rate of 21.2%. That will be further reduced by any credits, assuming your taxable income is the same as your gross income. Your effective tax rate could be much lower if deductions have already reduced your taxable income to $100,000 from a larger gross income. For example, if a 401(k) contribution reduced your taxable income from $115,000 to $100,000, you would still use the same tax calculation I've described here, but your effective tax rate would be 18.5%.

Income tax isn't the only concern for workers' paychecks in 2013. With the elimination of the temporary cut to payroll taxes, employees earning less than $110,100 will go back to paying their full share of the tax. For someone earning $50,000, that's $83 less in his take home pay each month than he would receive if the cut had been extended.

With the American Taxpayer Relief Act of 2012 now law, rather than Congress needing to extend the Bush-era tax cuts every year, they will be permanent. Congress can, however, create a new law at any time to change the rates or the tax brackets, but the end-of-year political dance about whether to renew these specific tax cuts will no longer exist.

http://finance.yahoo.com/news/update...124922974.html

--

comments

Welfare has ceased to be a means to help people and has become a lifestyle that enables more dependence. 5 year limit on welfare without permanent disability. Drug test all recipients.

...

Only the first 3 tax brackets apply. Anyone in the last 4 brackets actually pays the Alternative Minimum Tax which has a max rate of 28%. Welcome to the world of the IRS - smoke and mirrors people. Also note that huge jump from 10% to 25% for just about everyone in the Middle class. Peanuts for the poor, 28% max for the rich and 25% for you.

So, U.S. GDP dropped 0.1% in the fourth quarter. Does that mean that the current administration's policies that projected "growth" are not working? Yes.




US debt headed toward 200 percent of GDP even after 'fiscal cliff' deal
By Vicki Needham - 01/29/13 12:15 PM ET

The nation's long-term fiscal outlook hasn't significantly improved following the recent agreement between Congress and the White House over tax and spending issues, according to a new analysis.

The "fiscal cliff" deal, combined with the debt-limit agreement of August 2011, only slightly delays the United States reaching debt-to-gross domestic product levels that would damage the economy and risk another fiscal crisis, according to a report from the Peter G. Peterson Foundation released on Tuesday. http://www.pgpf.org/Issues/Fiscal-Ou...-analysis.aspx

The agreement "may have prevented the immediate threats that the fiscal cliff posed to our fragile economic recovery, but we haven’t remotely fixed the nation’s debt problem," said Michael A. Peterson, president and COO of the Peterson Foundation.

"The primary goal of any sustainable fiscal policy is to stabilize the debt as a share of the economy and put it on a downward path, and yet our nation is still heading toward debt levels of 200 percent of GDP and beyond," he said.

The report concludes that the recent round of deficit-reduction measures won't make major improvements because they fail to address most of the major contributors to the debt and deficit, including rapidly rising healthcare costs.


The analysis suggests that lawmakers take action quickly to ensure that the nation is on a sustainable fiscal path.

At a House Ways and Means Committee hearing last week, lawmakers and budget experts agreed that rising healthcare costs, such as Medicare, must be addressed this year as part of efforts to overhaul the tax code and entitlement programs.

"Until spending in those areas is reduced, tax revenues are increased, or policymakers implement a combination of both, the United States will continue to have a severe long-term debt problem," the report said.

"Reforms should be implemented gradually, and fiscal improvements must be achieved before our debt level and interest payments are so high that sudden or more draconian reforms are required to avert a fiscal crisis."

The latest deal that stopped income tax increases for those making $400,000 a year or less may have only improved the burgeoning debt situation by a year.

Scheduled spending cuts from the 2011 budget deal, combined with the fiscal cliff agreement, put the debt on track to reach 200 percent of GDP by 2040, five years later than was projected prior to the passage of the two deals.

The recent deficit-reduction measure gave the nation an additional year before hitting that 200 percent threshold, the report showed.

Sequestration does not improve the outlook much, either.

Even if the budget sequester is fully implemented, federal debt would still reach 200 percent of GDP within about 28 years.


On top of that, the debt will continue to grow between now and 2022, and will accelerate significantly after that.


Debt is now projected to grow from 72 percent of GDP in 2012 to 87 percent in 2022, down only slightly from the 90 percent that was estimated before passage of the most recent deal.

Many economists suggest keeping debt at or below 60 percent of GDP, with research showing that economic growth slows for countries that have debt levels exceeding 90 percent of economic growth.

"Americans shouldn’t be under any false impression that our debt problems are behind us," Peterson said.

"And because it takes years to implement policies fairly and gradually, we need to make decisions now, before we are forced by markets to take severe action that hurts our economy and our citizens."


Read more: http://thehill.com/blogs/on-the-mone...#ixzz2JTxCDzxF
Follow us: @thehill on Twitter | TheHill on Facebook