Information about how the recent “fiscal cliff” agreement, that the Senate passed 89 to 8, and the House passed 257 to 167, will affect local paychecks is becoming available.
The 154 page bill was signed into law by President Obama in Hawaii using autopen instead of signing the original documents. The documents were in Washington D.C. passed just in time to meet the deadline.
Initial summaries from the associated press and CNN say that it will preserve the expanded parameters for the American Opportunity Tax Credit and extend the Child Tax Credit and the Earned Income Tax Credit for 5 more years. The agreement will also continue a federal extension of unemployment benefits for one year.
The social security tax reduction, aka the “social security tax holiday” in effect for 2011 and 2012, has ended. The 4.2% rate will now revert to the 6.2%. For someone earning $40,000 a year, that amounts to a $800 annual increase in social security tax withholdings starting now. Those earning $30,000 a year will take home $50 less per month. Those earning $113,700 will put $189.50 more a month in to Social security.
Federal income tax rates will remain about the same so far in 2013, for all but high income households. High income was defined as those making over $400,000 year or $450,000 for couples. Earnings above those amounts will be taxed at a rate of 39.6 percent, up from 35 percent.
The capital gains and dividend tax rates for these high-income households will increase to 20% from 15%. For everyone else, investment tax rates will remain at 15% or below.
The legislation will preserve the current estate tax exemption level of $5.12 million but index it to inflation for future years. And it will raise the top rate to 40% from 35% currently.
The Biden-McConnell compromise will prevent a scheduled 27% cut in reimbursement for Medicare services for one year. The so-called “doc fix” could boost the deficit by $31 billion.
Close to 30 million middle-class taxpayers will be excluded from having to pay the so-called wealth tax or Alternative Minimum Tax (AMT) for 2012. The IRS has warned lawmakers that up to 100 million taxpayers would not be able to file their 2012 taxes until late March if an agreement wasn’t reached. The AMT patch made up a big piece of the fiscal cliff, by Budget Office estimates it will boost real GDP by about 1.25% in fiscal year 2013.
The bill will extend for two years several tax breaks for businesses, including a production tax credit for developers of wind projects, the research and development tax credit, and a measure allowing for bonus depreciation.
$109 billion worth of across-the-board spending cuts were delayed for two months. Other issues including the debt ceiling and a continuing budget resolution are also still to be addressed in coming months.
With many key issues delayed only a few months, the stock markets were up a bit but traded near flat today. The Dow added 4 points to 13,417 on mixed December retail sales. Nasdaq rose 4 points to 3116.
Local representatives Republican Congressmen Jeff Denham and Dan Lungren voted in favor of the Senate package. Republican Congressman Tom McClintock, whose district will add Tuolumne and Calaveras Counties, voted in opposition.
McClintock spoke on his views in an interview for “Mother Lode Views” recently which is posted here.