The fiscal cliff
has been a hot topic in my circle of friends. On New Year’s Eve a group of 30-somethings all jumped in the air while my nephew took a photo of our homage to the phrase “jumping off the fiscal cliff.” Obviously we’re a bit nerdy but fiscal cliff conversations continued to pop up throughout the night. Today, my group of friends that fall all along the political spectrum breathed a collective sigh of relief knowing that Congress has reached a fiscal cliff deal.
On Tuesday morning, the Senate passed the fiscal cliff deal with a vote of 89-8. Late last night, the House followed suit and the bill passed with a vote of 257-167. Unfortunately, the legislation isn’t an all-encompassing bill and a few big issues have been put off for future vote. However, some of the more pressing issues have been addressed, which is good news for the majority of the nation’s taxpayers.
Single taxpayers making less than $400,000, head of household filers making under $425,000 and married couples earning less than $450,000 will not have to pay higher income tax rates. This covers about 98 percent of taxpayers in the nation. People that fall above these income thresholds will be paying higher taxes, 39.6 percent, marking the first time since 1993 that federal tax rates have been raised.
Other highlights from the deal include:
- Emergency unemployment compensation and extended benefits program extended through January 2014
- Agricultural programs extended for one year, which will avoid the $7/gallon milk “dairy cliff”
- Sequester cuts delayed until March 1, 2013; this means a new Congress will have to tackle this issue quickly
- Eliminates the 2 percent payroll tax cut
Even though tax withholding rates on 98 percent of taxpayers will remain the same in 2013 as they were in 2012, everyone is going to pay higher taxes this year because of the elimination of the 2 percent payroll tax cut.