The Fiscal Cliff Resolution: What It Means for Your Wallet

Gabrielle Karol
Posted

After passing through the Senate on Monday, the House of Representatives approved legislation ending the fiscal cliff standoff late Tuesday. It was passed by 257-167 votes, as 85 Republicans voted yes alongside 172 Democrats.

While the legislation will prevent significant tax increases for most Americans and spending cuts to important government programs, members of both parties have reasons to be unhappy with the measure, which most agree does not solve the underlying issues present in our country’s fiscal policies.

How This Will Affect Your Bottom Line

The fiscal cliff solution has some significant implications for your wallet. Here’s the full breakdown.

Payroll Taxes

The two-point payroll tax cut has expired. In the next couple of weeks, you will likely see more withheld from your paycheck. Individuals earning $113,700 or more will see nearly $200 more withheld each month.

Income Taxes

Individuals making over $400,000 and couples with household incomes of over $450,000 will see their tax rates increase to 39.6% from 35%. For individuals and households making less than those thresholds, the Bush-era tax cuts have been made permanent.

Households making between $500,000 and $1 million will see income tax increases averaging slightly more than $15,000. Households with over $1 million in income will average slightly more than $170,000 in increased taxes.

RELATED: Warren Buffett Proposes 30% Income Tax for Millionaires

The Alternative Minimum Tax has been permanently tweaked, so that middle-class workers who have not been paying it will continue to not be affected.

Joint-filers earning more than $300,000 and individuals earning more than $250,000 will see limits on personal exemptions and itemized deductions applicable to them when filing their taxes.

RELATED: Why Half of Americans Don’t Pay Federal Income Tax

Capital Gains and Dividend Rates

For joint-filers earning more than $450,000 and individuals with incomes over $400,000, the capital gains and dividends rates will rise from 15% to 20%.

  • Allonarbor

    This article seems to only be concerned with the increases for high income earners. The lowest it seems to be concerned with is where it discusses payroll tax increases and says, “Individuals earning $113,700 or more will see nearly $200 more withheld each month.” How about those earning less? I read elsewhere that those earning ~$40K will see payroll tax increases of $400 to $500 per year. Why does a lengthy article like this not show the tax increases that will affect lower wage earners? Could you please also show this?

    • Bbhart113

      I am very interested to see the response to this great question abou thte article, as I make no where near what is mentioned and I’d like to see how I’m impacted.