The Fiscal Cliff And You

Thankfully, the “fiscal cliff” crisis has been averted.  It may have taken the politicians a long time to come to an agreement, but after putting the country through an inordinate amount of pain and suffering a deal has been agreed to.

The new deal, thankfully for many of our clients and readers means that all of the doom and gloom that was discussed here, and throughout every news and media outlet throughout will not come to fruition.

In reviewing a breakdown of the ramifications of the new deal done by CNN, here are the most important provisions that will affect the majority of our clients and readers:

Payroll taxes: Wage earners will now pay a 6.2% payroll tax on the first $113,700 in wages since the deal did not extend the 4.2% rate that had been in place for two years. That means workers earning the national average salary of $41,000 will receive $32 less on every biweekly paycheck.

This 2% increase in payroll taxes will be the one area that most will feel immediately across the board.

Family tax breaks:Tax breaks important to families that were part of President Obama’s Recovery Act are extended for five years. They include: American Opportunity Tax Credit, a partially refundable credit of up to $2,500 a year for four years for low-income families; Child Tax Credit, which allows lower-income parents to claim as much as $1,000 for each child under age 17 and is refundable for some, and the Earned Income Tax Credit, which provides a credit for working Americans with low- and moderate-incomes. The expanded dependent care credit, which allows certain taxpayers to deduct up to 35% of expenses to a maximum of $6,000 for two children, is permanently extended.

As discussed in our previous articles on the fiscal cliff, this is one area where, if the crisis were not averted would significantly affect a great number of readers with children, especially with children in college.

Marriage penalty:Married couples will continue to receive a standard deduction that’s twice that of individuals. And the income ranges for the 10% and 15% tax brackets are also doubled.

Debt forgiveness: Homeowners who receive principal forgiveness or go through a short sale or foreclosure will not have to pay tax on the amount of debt forgiven since the deal extends this 2007 act by one year.

This last one, debt forgiveness, is especially welcome by many of our clients and readers as not extending this would have led to significant tax problems for the thousands affected by a foreclosure or short-sale on their residences.

The remainder of the deal effects primarily those with an income of greater than $250,000 per year, and certain investment vehicles used primarily by the wealthy.  For a complete run-down on the remaining deal points read this article.

For many, this is a welcome deal, that will leave the status quo for the majority of American’s in place. While problems still remain as to what to do with our run-away national debt, and the willingness to of our government to reign in spending we should all breathe a sigh of relief for what could have been.

Are you happy with the end result of the fiscal cliff negotiations and the deal? Leave your comment below.

Image By: striderp64

About Anthony Candella

Anthony is the founder and Directing Attorney of YourCreditAttorney.com and has been helping consumers just like you understand and improve your credit and financial situation since 2003.