As many Americans breathed a sign of relief at the eleventh-hour deal averting the expiration of major tax breaks and the so-called “fiscal cliff‚” we should not rest on our laurels just yet.
Woodland Hills Chapter 7 Bankruptcy Attorneys are warning clients and potential clients to brace for what may be a bumpy year. First of all‚ the fiscal cliff deal didn’t eliminate the risk of higher taxes. It simply put them off for now. Secondly‚ there are a number of tax increases that the vast majority of U.S. workers are still going to have to contend with.
Perhaps the biggest of those is the Social Security payroll tax. On the last day of last year‚ this tax reverted back to its normal rate of 6.2 percent. Previously‚ it had stood at 4.2 percent since 2011. The whole reason it was taken down a notch in the first place was to give U.S. households extra spending cash in order to help jump start the economy. It hasn’t been renewed.
So if you are a household bringing in a gross paycheck of $50‚000 a year‚ you can expect your earnings to reduce by about $1‚000 annually. That’s roughly $20 a week. If you make less than $30‚000 before taxes‚ you can expect to rake in about $600 less annually.
While the fiscal cliff deal raised investment and income taxes only on those making $400‚000 annually (or $450‚000 for couples)‚ the Social Security payroll tax is going to hit everyone – whether they are making $15‚000 or $1.5 million.
This represents the first broad-based‚ individual federal tax increase in three decades‚ according to California economists. Indeed‚ most of the broad-based changes since the 1960s have been tax cuts – not increases.
Of course‚ we realize that Social Security has to be funded somehow. The national debt ballooned by an additional $215 billion due to workers who didn’t pay into it during the 2011-2012 fiscal year.
Still‚ the effect of this tax increase is estimated to be 500‚000 to 2.1 million jobs. Roughly 170‚000 of those losses are expected to hit California. That’s certainly a more significant blow than the extra $20 a week.
Wealthier taxpayers tend not to get as much sympathy‚ but the fact is‚ it is just as easy for them to get caught in the debt trap. And from what we know so far of the fiscal cliff deal‚ it is these individuals who will carry the heft of the burden. The Associated Press reports that in 2013‚ taxpayers making between $500‚000 and $1 million can expect to have their taxes increased by an additional $15‚000. Households making more than $1 million are going to have to fork over an additional $170‚000.
In the grand scheme‚ these tax increases shouldn’t be enough to force someone on the road to bankruptcy. But they certainly don’t help‚ and could be enough to push someone over the edge who was already teetering.
Filing for a bankruptcy is not a decision to make lightly‚ of course‚ but in some cases it can be the smartest decision to help ensure a better tomorrow.
If you are facing Chapter 7 bankruptcy in Woodland Hills‚ contact Cal West Law to schedule your free consultation. Call (818) 446-1334.
Inside The Fiscal Cliff Budget Compromise Bill: Tax Cuts and Tax Hikes‚ Jan. 1‚ 2013‚ IdeaStream
Why your next paycheck will be smaller‚ Jan. 2‚ 2013‚ By Karen Datko‚ MSN Money