We've heard over and over that it's coming: a "fiscal cliff." The dramatic phrase has become so common in government circles that it's become unavoidable. And no one doubts that the expiration of numerous tax cuts at the end of the year could profoundly affect individual income taxes.
Taxpayers in Texas and across the country await possible action by Congress before December 31. Ninety percent of all taxpayers are expected to be affected in one way or another.
Of course, the impact of the expiration of the tax cuts will vary considerably according to income. For households in the middle income range, it may mean paying a couple of thousand dollars more. For people in the top one percent of the income distribution, however, the additional amount of taxes could be around $121,000, according to the Tax Policy Center, nonpartisan research group.
The Obama administration and Congress are considering whether to take action to change the scheduled expiration of the tax cuts at the end of the year. What will happen is very uncertain, given the political realities in Washington. It is even possible that proposals for a comprehensive reform of the tax code could emerge from policymakers' discussions.
One category of tax cut that may be allowed to expire is the payroll tax cut that the federal government enacted for 2011 and 2012. It was intended as a temporary stimulus and affects everyone who works for pay - about three fourths of taxpayers.
In addition, starting next year, individual taxpayers with earned incomes over $200,000 and households with incomes over $250,000 are facing the payment of 0.9 percent more on their income over those amounts. These taxpayers also are scheduled to pay 3.8 percent more on other types of income (capital gains, interest and dividends) over those same thresholds.
A lot can happen, however, between now and December 31. It is very important to stay informed in order to respond to developments as they occur.
Source: "Higher Taxes Are to Start With Flip of a Calendar," New York Times, Catherine Rampell, 11-9-12