There is a lot of talk centering around the fiscal cliff, and what can be done about it. What seems clear is that taxes are going to go up. However, there is still some debate over who will see those higher taxes.
It makes sense to look forward a little bit, and see what might be coming in terms of tax liability for a new year. Even if you have an accountant help you figure your taxes, it still makes sense for you to properly prepare for what’s coming.
Higher Payroll Taxes May Be Coming
The tax mostly likely to affect more people is the expiration of the payroll tax cut. A couple of years ago, payroll taxes for employees were reduced by 2%. This led to a higher paycheck. However, that payroll tax break is expected to expire, and so far the politicians haven’t done much to mention it, or indicate that it is something that they will work to retain.
Unless something changes, starting in January your paycheck is likely to be a little bit smaller. The payroll tax cut will expire, and your higher Social Security tax means smaller take home. Prepare by considering what you might need to cut from the budget to make up for it.
Medicare Surtax on Investments
The provisions of the Patient Protection and Affordable Care Act were meant to take effect over time, and in 2013 one of the provisions is a Medicare surtax. If you make more than $250,000 a year (married) or $200,000 (single), you will be required to pay extra in taxes for Medicare. High earners will pay an extra 0.9% Medicare tax on earned income. However, if you make more than that you will also pay a 3.8% surtax on investment income. This is something to be prepared for as well, if you are above the income threshold.
Higher Tax Brackets
There is also some discussion about higher tax brackets. If the so-called Bush tax cuts expire across the board, everyone will probably see an increase in taxes. However, there has been talk about raising taxes on the top two income brackets, rather than letting the Bush tax cuts expire for everyone.
In any case, there is a chance that you will find yourself in a higher tax bracket, although many politicians are unlikely to let that happen for households that are considered to be solidly in the middle class. No one wants to upset that segment of voters.
There is a reasonable chance that you will pay higher taxes in the coming year, even if it is only because of the payroll tax cut expiring. It’s a good idea to carefully consider your own situation, and try to figure out how you might be affected in 2013, and what you can do to alleviate some of the difficulties. Think ahead, and prepare for the possibility of higher taxes. It’s difficult with all the uncertainty, but if you are prepared for the worst possible scenario, you will be more likely to come out ahead.