Lawmakers weren’t the only ones that had a tension-filled holiday weekend. Taxpayers waited with bated breath for the outcome that would determine whether or not it really would be a “happy” 2013. The results were mixed.
Here’s the lowdown on key items affecting your taxes in 2013:
-Only about 0.7 percent of households will be subject to an income tax increase this year.
-About 77 percent of households will pay a larger share of income to the federal government.
-The tax this year will increase by two percentage points, to 6.2 percent from 4.2 percent, on all earned income up to $113,700.
-Few households with actual incomes of less than half a million dollars will face a tax increase.
-The size of those increases will be much smaller than President Obama originally proposed.
-The Obama administration won a five-year extension of tax breaks for lower-income families, including the child tax credit and earned-income tax credit.
Winner: Middle/Low Income Taxpayers
Those making $40,000 to $50,000 (The median household earning amount for 2013) will avoid paying the extra $1,000 in income taxes thanks to The Alternative Minimum Tax, but still have to pay $1,000 in payroll taxes. While it could have been worse, Americans can expect to see payroll reductions effective their next paycheck.
Winner: AARP Members
Seniors can breathe a sigh of relief. Despite the threat of significant cuts to Medicare and Social Security, there will be no plans to switch to a chained CPI, which would have reduced the amount in social Security payments.
Winner: President Obama
A President who actually keeps his promises during a campaign re-election, Obama centered the fiscal cliff negotiations around taxes—increasing taxes on the rich and cutting taxes for the middle class. Although it wasn’t the perfect deal, he managed to renew key tax cuts from his 2009 stimulus package and extending unemployment insurance.
Winner: Senate Minority Leader Mitch McConnell
An unexpected peace-maker of sorts, he stepped in at the last minute to referee the final showdown between President Obama and Speaker John Boehner, helping to draw up a legislation that Republicans would support.
Loser: The 1 Percent
Those who make over $400,000 annually from investments are going to feel the sting from this deal. In addition to higher income taxes, they’ll be charged a 20 percent tax rate on their capital gains and dividends. On the positive side, they can still donate up to $5 million tax-free, with any additional money taxed at 40 percent.
Loser: Speaker John Boehner
It got a little lonely out on that tree branch for John Boehner. He failed miserably in his attempts to rally his caucus behind an alternate cliff deal, which temporarily stalled negotiations with Obama. “Plan B” had too many tax increases and not enough spending cuts—and his fellow Republicans gave it the thumbs down.
Loser: The US Treasury
Here we go again. The United States hit its borrowing limit on Monday, January 1st, forcing the U.S. Treasury Department to once again step in to prevent a government default. This sets the stage for another fight in Washington for how and if to raise the debt ceiling, in addition to affecting the US’s credit reputation with other countries in the future.
Loser: The US Deficit
While the last minute deal had its positive aspects, it didn’t do a thing to cut spending to the deficit. The question is, where do we go from here?