On Dec. 31, 2012 Washington hammered out a last-minute agreement for tax deals to avert the looming fiscal cliff.
A collective sigh of relief could be heard by taxpayers even though Congress did not fix spending cuts.
Now as we begin gathering documents for the April 15 tax filing date, there are new tax laws from the fiscal cliff deal that will affect everyone.
One immediate thing that will be noticed is the Internal Revenue Service (IRS), thanks to the last-minute changes, is processing tax returns at a slower rate.
But it doesn't mean you have to delay things.
U.S. President Barack Obama has said that 98% of Americans will not see their income taxes go up – but take a look to be sure, because there is something for everyone in here.
Your Fiscal Cliff Deal Tax Changes for 2013
First, here's some good news from the tax changes:
- Being married isn't a bad thing! Couplesstill have the standard deduction that's twice that of individuals. For the 2012 tax year, this standard deduction increased to $6,100($12,200 for married couples filing jointly), a rise from $5,950 ($11,900 for married couples filing jointly).
- Many middle-class taxpayers will be protected from the alternative minimum tax (AMT)as the income exemption level will now be permanently adjusted for inflation. This means taxes will be less for the 60 million Americans that would have impacted.
- For homeowners who were either granted principal forgiveness or underwent a short sale or foreclosure, they will not have to pay tax on the forgiven debt amount with the deal's one-year extension.
But, here's where you got hit:
- Say goodbye to the two-year payroll tax holiday. It has expired and now employees' net pay is down two percentage points as 6.2% of Social Security will be taken out of paychecks versus 4.2%. There is $113,700 wage ceiling so any wages over that will be exempt.
- A worker with a $41,000 salary – the national average–will have $32 less in a biweekly paycheck, reported CNN.
- High-income earners – $400,000 and higher (individual)/ $450,000 (married filing joint) – will see their tax bracket rise from 35% to 39.6%. But this does not impact 2012 income tax returns.
- Also, these high earners will now pay a 20% capital gains rate, up from the previous 15% rate and a new 3.8% surcharge from the Affordable Care Act.
- Individual taxpayers making $250,000, the head of the household earning $275,000 and married couples filing jointly and earning $300,000 will now have limits on personal exemptions and itemized deductions.
- For those with $422,500-plus income, they will not qualify for a personal exemption.
- The estate taxes exemption stays at $5.12 million but it will now be calculated with inflation. The top tax rate increased to 40%, up from 35% for those in the highest income bracket.
Fiscal Cliff Deal Didn't Change All Taxes
These got extended:
- State and local sales taxes can be deducted from your filing.
- Teachers can receive a $250 break from school supply expenses.
- Eligible college students can deduct tuition and other education-related expenses from their income.
- Individual Retirement Account holders older than 70.5 can make tax-free distributions for charitable purposes.
- Family tax breaks for lower income families have a five-year extension. This includes the American Opportunity Tax Credit (a partial refundable credit up to $2,500 annually for four years), the Child Tax Credit ($1,000 can be claimed for a child younger than 17 with a partial refund) and the Earned Income Tax Credit (working Americans with either low- or moderate-incomes can receive a credit).
- Mortgage insurance premiums can be deducted as mortgage interest.
Related Articles and News:
- Money Morning:
Taxmaggedon 2013: These Changes Mean Less Take Home Pay For Everyone - Money Morning:
Possible Tax Changes for 2013 Trigger Stock Selling - Fox Business News:
Tax Law Changes You Need to Know for 2013 - CNN:
Your taxes under the fiscal cliff deal
The EIC and child tax credit should be the first things cut… I'm sorry I know people who worked part time jobs made under 15,000 last year, received welfare, free housing and insurance, and turned around and got an 11,000 tax return. If u get government help all year and they pay your housing, food, insurance….. Etc, your return should never exceed 5 percent if your AGI…. These people are given hand out after hand out while the middle class struggle to provide for their families. Yes I made over 21,000 last year but I busted my ass to do so. I didnt get a hand out, I owe 42,000 in student loan to get my job, I'm a single mother and I struggle everyday, sometimes I work over 75 hours in a week to provide while my tax dollars are handed to people who admit they cut their hours so they could get the full EIC. Our government breeds laziness and fraud. Why should any one work when you can sit home all day smoke weed, drink liquor, but steak and crab and junk food work ten hours a week and get an 11 thousand dollar tax return. These are the same people that will be in the ER next week because there child has a fever and they don't want to spend their money in Tylenol. All these budget cuts for the struggling middle class need to be taken from the people who can work but choose not to. I'm all for programs for the elderly or those that are truly truly disabled. None of the ADHD, bipolar, back pain scam artists, truly disabled like you can look at them and see their sick, cerebral palsy, ms, cf, true disability. But all this money to people who realized its easier to be lazy and often more lucrative…..where does it end. I say if you get government help your tax return is capped at 5 percent of your AGI the rest goes back into the programs that supported you all year long