[1]The term “fiscal cliff” has been all over the news lately. But what does it really mean?
The fiscal cliff refers to a group of pending tax law changes and the effect it will have on the average household. For the last decade we have enjoyed historically low tax rates as well as tax credits and deductions that will soon expire.
Here are a few of the changes that will occur at the end of 2012:
- The 10% tax bracket will be eliminated, making 15% the lowest bracket.
- The highest tax bracket will be increased to 39.6%, up from 35%.
- Tax on capital gains will be increased to 15 % and 20%, depending on your income tax bracket. This is increased from the 0% and 15% rates currently in place.
- The 0% tax rate on qualified dividends will be eliminated.
- The child tax credit will be reduced from $1,000 to $500.
- The AMT (alternative minimum tax) income exclusion will be reduced significantly causing many more taxpayers to be subject to AMT.
- Itemized deductions for high-income taxpayers will again be subject to a 3% reduction.
- The 2% reduction in employee contributions to Social Security will expire. Employees will be required to contribute 6.2% going forward.
Below are a couple articles that illustrate how the tax law changes will affect sample households. Please contact your tax advisor at ShindelRock [2] for question on how these changes will affect your personal tax situation.
http://finance.yahoo.com/news/how-the-fiscal-cliff-may-affect-your-taxes.html [3]
http://taxfoundation.org/article/how-would-fiscal-cliff-affect-typical-families-each-state [4]