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So we didn’t go off the fiscal cliff… now what?

Lawmakers were not able to pass a bill preventing us from going over the “fiscal cliff” before midnight on Dec. 1, but they were able to reach an agreement on New Year’s Day. The deal will prevent most people in Minnesota and the rest of the country from paying more in income taxes.

However, individuals making more than $400,000 and couples bringing in more than $450,000 will have to pay more to the IRS in 2013 than they did in 2012. Although, tax experts say it’s a much better scenario than they would have faced if the cliff had not been averted. That said, the top tax rate for these households will jump back up to 39.6 percent, which is where it stood in 2000.

Capital gains tax for these households will also revert to the pre-Bush-era level of 20 percent, which is up from 15 percent in 2012. But when you add in the additional tax pursuant to the health-care reform laws, the rate on long-term capital gains will sit at 23.8 percent for these top earners.

Even so, according to the bi-partisan Tax Policy Center, these households still received many tax breaks under the new legislation. For example, households in the $500,000 to $1 million income range can expect to see their after-tax income to drop by 1.4 percent under 2013’s new tax laws, meaning they will pay an average of $6,689 more in taxes, according to the TPC.

The working population will also end up paying in more to Uncle Sam in 2013 after a temporary payroll tax cut was allowed to expire. Once again, workers will pay 6.2 percent of their paychecks to Social Security, which is up from 4.2 percent in 2012.

Of course, many other changes to the tax laws also went into effect with the fiscal cliff deal. To find out more about how your income, family or business is affected by the new tax laws, talk to an experienced tax lawyer in your area.

Source: Fox 6 WBRC, “Fiscal cliff deal: What will it mean for you,” Mark Trumbull, Jan. 4, 2012

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