On Dec. 31, 2012, the "fiscal cliff" fix called the American Taxpayer Relief Act of 2012 was passed by the U.S. Senate. It was passed a day later by the U.S. House of Representatives. Although taxes will increase, there are changes that will save Americans from the tax cliff that was anticipated. An article by DC Decoder explains various ways the fix will affect Americans. Take a peek.
Emergency unemployment insurance benefits, which were expiring, have been extended a year. These funds are to help the estimated two million out-of-work Americans.
Without action to extend 2012 policies, dairy prices — especially milk — were set to surge as the law reverted to a 1949 pricing system. But with the new legislation you can have your milk and drink it too. Prices won’t spike, DC Decoder says.
“Short sales,” where a lender agrees to accept less than the full balance due on the mortgage without treating the forgiven debt as taxable income, are still allowed for borrowers. Short sales are an alternative to foreclosure, so this will help those in the housing market, according to the article.
Many people's paychecks will have 6.2 percent taken out for Social Security. This is a 2-percentage point increase from the 4.2 percent of last year. Combined with Medicare, payroll taxes take 15 cents per dollar.
The American Opportunity Tax Credit has been extended for five years. The policy deals with college costs. President Barack Obama’s Child Tax Credit and Earned Income Tax Credit were also given five-year extensions.
A permanent provision for adjusting AMT liability for inflation has been made. Also, most Americans won’t have an income tax rate change. It is through this that the very rich are taxed more, to not ‘dodge’ too many taxes, according to DC Decoder.
Those making $250,00 or more, and those making $300,000 or more will have new limits on personal exemptions and itemized deductions.
Individuals who make more than $400,000 and couples earning more than $450,000 will pay higher taxes. The highest tax rate on ordinary income will be the same as it was in 2000 at 39.6 percent.
Before President George W. Bush, wealthy households were taxed 20 percent on capital gains, which was up from 15 percent. With President Obama’s health care reform, the top federal tax on long-term capital gains will be 23.8 percent.
When looking at individual tax increases, it makes the policy seem like a tax hike, according to DC Decoder. For example, those who make $500,000 will pay about $6,689 more in taxes.