The Cliff and You
Understanding the American Taxpayer Relief Act of 2012.
Senior Vice President
There are enough articles on new tax rates, feuding politicians, and deficit concerns to keep us reading for months. However, most people are really interested in answering one question: “How does it affect me?”
Many people believe if they make under $250,000 they are not affected. However, almost everyone is affected by the officially-called, “American Taxpayer Relief Act of 2012.” Below we list some various household tax situations, identify which parts of this Act directly affect them, and note the estimated increased obligations to the taxpayers.
Individuals may benefit from extended unemployment benefits.
Household with $75k income
Social Security payroll tax. Tax increase = $1,500.
Household with $150k income plus $5,000 qualified investment income
Social Security payroll tax. Tax increase = $2,274.
Household with $250k income plus $20,000 qualified investment income
Social Security payroll tax plus Medicare surtax. Tax increase = $3,034.
Household with $550k income, plus $50,000 qualified investment income and $50,000 in itemized deductions
Social Security payroll tax, Medicare surtax, Medicare payroll tax, increased rates on income and capital gains & dividends, reduced itemized deductions, and phased out of exemptions. Tax increase = $13,000+.
Some general guidelines for a range of incomes are as follows: The average tax increase for those households earning $200k to $500k is $2,711; for $500k to $1MM is $14,812 and for households earning more than $1MM is $170,341.
Plan ahead for tax year 2013 and beyond. While you cannot control tax rates, you can control how you invest, and in some situations, when you are paid. As you meet with your advisor or accountant in the coming months, inquire as to how these changes may affect you in the current tax year. It is likely some planning with your professional advisors will help reduce these tax increases.
Source: Tax Policy Center, Committee for a Responsible Federal Budget
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