Enough.
That’s probably the word you’ve used to express your frustration with the fiscal cliff negotiations. And now we all have to digest what was agreed to and how it will affect our finances.
Lori Montgomery and Rosalind S. Helderman of The Washington Post report on the changes that prevented tax increases for millions of middle-class taxpayers from taking effect this month. But the deal does increase tax rates on wages and investment profits for households earning more than $450,000 a year.
The Washington Post’s Suzy Khimm has put together a fiscal cliff deal cheat sheet. Here are some of the details in the bill:
-- Tax rates will permanently rise to Bill Clinton-era levels for families with income above $450,000 and individuals with income above $400,000. All income below the threshold will permanently be taxed at the George W. Bush-era rates. That means that income above the $400,000 would be taxed at 39.6 percent, up from the current top rate of 35 percent.
-- The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold – the new definition of wealthy. It will remain at 15 percent for everyone else.
-- Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks.
-- Personal exemptions and itemized deductions for income above $250,000, or $300,000 per household are capped.
The bad news for everyone is that payroll taxes will go back to 6.2 percent from 4.2 percent. So, how much will your paycheck be affected? The nonpartisan Tax Policy Center estimates that 77 percent of Americans will see higher taxes because of the elimination of the payroll tax cut, meaning $115 billion less in disposable income, reports the Los Angeles Times.
In real numbers, that mean families earning $50,000 to 75,000 a year will have $822 less this year than in 2012, according to the Tax Policy Center. People making $75,000 to $100,000 will see $1,206 less in their paychecks, while those making $200,000 to $500,000 will see a drop of $2,711 in their paychecks.
I would like to hear from you. The Color of Money Question of the Week: How will the fiscal cliff deal affect you? Send your comments to colorofmoney@washpost.com. Put “Fiscal Changes” in the subject line. Please include your full name, city and state.
Chat Today
Join me today at noon ET for a live online chat with C.C. Chapman, author of the Color of Money Book Club selection for December, “Amazing Things Will Happen: A Real-World Guide of Achieving Success and Happiness.” Here’s the review of the book, if you missed it.
If you can’t make the chat live, you can read the transcript later.
Retirement Tax Changes for 2013
If you actually do have any extra money, you can contribute more to your retirement plan this year.
To keep up with inflation, the Internal Revenue Service announced that the annual limit on contributions to 401(k) plans is rising to $17,500 from $17,000, reports Jia Lynn Yang of The Washington Post.
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