'Fiscal cliff' deal: What will it mean for you?
Some aspects of the fiscal cliff deal are well-known – such as rising tax rates on the rich. But, actually, everyone will be paying more taxes. Here's a look at the deal's details.
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Inheritors. The estate tax rate will rise to 40 percent, from 35 percent in 2012. The tax will affect estates valued above $5 million.Skip to next paragraph
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Income tax filers. Most Americans will see no change in their income-tax rates, and they'll enjoy relief from annual worry about whether Congress will "patch" the Alternative Minimum Tax (AMT). The deal includes a permanent provision for adjusting AMT liability for inflation. That protects millions of Americans from being snared with higher taxes by a tax provision designed to ensure that the very rich don't dodge too many taxes. The deal also includes a five-year extension of Obama's American Opportunity Tax Credit (for college costs) and of his expanded Child Tax Credit and Earned Income Tax Credit.
Individuals making $250,000 or more, and couples making $300,000 or more, will have new limits on their personal exemptions and itemized deductions.
Upper-income income tax filers. Individuals making more than $400,000, and couples earning more than $450,000, will pay higher taxes in 2013 than they would have under 2012 policy. The top tax rate on ordinary income will jump to 39.6 percent, where it stood in 2000.
Capital gains for these households will be taxed at a pre-Bush-era rate of 20 percent, up from 15 percent. When you add in an extra tax on high-earner investment income related to President Obama's health-care reforms, the top federal tax on long-term capital gains will be 23.8 percent.
The nonpartisan Tax Policy Center offers a preliminary estimate of what this might mean at the personal level. In this case, it's complicated. You could call it a "tax hike" compared with 2012 policy. But high-income taxpayers still enjoy significant tax relief in the legislation, compared with what they would have faced if Congress had done nothing and the Bush tax policies had expired outright.
Shown here is the change compared with a continuation of the Bush-era tax rates:
- $500,000 to $1 million in income: Households in this income category will see their after-tax income drop by 1.4 percent, compared with 2012 tax policy. They'll pay an average of $6,689 more in taxes.
- More than $1 million in income: Households in this income category will see their after-tax income drop by 5.7 percent, compared with 2012 tax policy. They'll pay an average of $122,560 more in taxes.