Fiscal Cliff Made Easy

Are you able to understand the ‘Fiscal cliff’?  I am not very good with politics and taxes, so I had my boyfriend (an amazing guy who started watching political news at the age of 7) explain it to me.

Well, his “cliff notes” version for the ‘fiscal cliff’ is this:

• There is a higher tax rate for individuals who earn more than $400,000 and on family incomes of $450,000 or more. The tax rate used to be 35%, now it is 39.6%.  
• There will also be an increase of 2% taken out of each pay check on the first $113,700. This will cost you about $2,274 maximum.
• Capital gains and dividend tax rates went up from 15% to 20%.
• Our Personal Exemption Phaseout (PEP) Itemize deduction limits to $250,000 for individuals and $300,000 for joint filers.

Some good news for the low to middle wage earners:

• The Child Tax Credit is up to $1,000 for each child under 17. (Details are in IRS Publication 972)
• The Child and Dependent Care Credit will be reduced, but at least you will still have credit for your child-care expenses. (IRS Publication 503)
• You can get a maximum annual credit of $2,500 for The American Opportunity Tax Credit. This is for four post-secondary education years instead of two. It's good for individuals with gross income of $80,000 or less.

If you want to get deeper, here are a few links you can visit:

http://www.npr.org/blogs/thetwo-way/2013/01/01/168419337/inside-the-budget-compromise-bill-tax-cuts-and-tax-hikes

http://money.cnn.com/2012/12/31/pf/taxes/family-tax-credits/

http://www.moneytalksnews.com/2013/01/02/what-the-fiscal-cliff-bill-means-for-your-money/

Written by Linh Dang

Founder of FreedomCollage