Regardless of the decision Democrats and Republicans reach in the “fiscal cliff” negotiations, Americans will end up paying more taxes in 2013.
Tax cuts, such as those from the Bush era, are set to expire Dec. 31, and a few new taxes are slated to begin Jan. 1, though the exact amount taxpayers would pay has yet to be determined.
Employees should prepare to take home 2 percent less money in their paycheck if no legislation is signed, said Mark Betts, payroll director for ASAP Accounting & Payroll Services Inc. in Durango.
A Social Security payroll tax cut that was intended as a temporary stimulus in 2011 and ’12 is set to expire with the new year. The tax rate went from 6.2 to 4.2 percent for employees and from 12.4 to 10.4 percent for self-employed people.
It appears that President Barack Obama is willing to let the tax cut expire after he dropped the tax-cut extension from his most recent fiscal proposal to Republicans.
Some accountants are encouraging clients to accelerate income into 2012 rather than push it into the new year to save the 2 percent in taxes.
“Most of the time people are trained to defer income, and this is one of those years where it’s a better idea to go ahead and pick it up as income this year,” said Charles Fredrick, a certified public accountant with Fredrick Zink & Associates in Durango.
For example, those with a cash-based business could ask that customers pay in December instead of in January so the income could be claimed in 2012, rather than ’13.
Under the Patient Protection and Affordable Care Act, high-income Americans – married couples filing jointly who make more than $250,000 and individuals making more than $200,000 – will pay a Medicare Surtax of 0.9 percent on wages. Those households also will pay an additional 3.8 percent Medicare Surtax on net investment income, such as dividends, capital gains and interest.
Lawmakers are expected to lower the exclusion amount for estate and gift taxes. Currently, the first $5.12 million of a person’s estate remains untaxed, but if no deal is brokered, that amount is scheduled to decrease to $1 million. President Barack Obama has indicated he is in favor of a $3.5 million exemption. Anything gifted above $5 million is taxed at 35 percent, but that rate could rise to 55 percent.
Taxpayers also are facing a long-term capital gains tax-rate increase. The Bush-era tax cuts put the rate at 15 percent, but it is reverting back to 20 percent starting in 2013.
Additional taxpayers could be affected if lawmakers don’t fix the Alternative Minimum Tax.
The AMT was established in 1969 to make sure high-income Americans paid income tax, but the threshold was not indexed for inflation and could affect millions of Americans it was never intended to affect if lawmakers don’t pass an AMT “patch.”
Taxpayers who meet the AMT threshold calculate their income tax under the regular system and the AMT, and they must pay whichever amount is larger.
An average Colorado family with two children would pay about $3,646 more a year in taxes if lawmakers don’t pass a “patch,” according to the Tax Foundation, a nonpartisan tax research group.
People should consult with a professional before making any changes to their income or estates because of the tax code’s complexity, Fredrick said.