Well, Congress has hammered out a deal, and there is some good news in it. They’ve made solid changes to our tax situation, and so we have an idea of what our tax bills might look like this year. Unfortunately, they’ve pushed the sequestration issue down the road for two months, absolving the current Congress for responsibility for that problem and setting up a sequestration battle at just the same time as the federal government meets the ceiling on it’s ability to borrow money. What’s a planner to do?
Taxes, Taxes, Taxes
First, be glad that there is some resolution to the nagging tax questions for this year. While it is always possible that the upcoming problems could result in Congress changing taxes retroactively, that would politically disasterous. We’re probably OK for 2013. What will happen after that? Who knows…
Major important changes include:
- Expiration of the Social Security payroll tax decrease. Effective immediately, everyone will pay 6.2% of their wages for the Social Security payroll tax, up from 4.2% in 2012. This tax is paid for the first $113,700 in income each year.
- 2012 tax rates made permanent for all earners under $400,000 single/$450,ooo married.
- Extension of the higher, $1,000 per year child tax credit, the higher Earned Income Tax Credit, and the American Opportunity Tax credit.
- Alternative Minimum Tax exemption permanently raised and tied to inflation. No more yearly patches!
We’re Not Safe Yet
Second, start preparing your family to weather some financial storms. Hopefully, military families won’t feel any fall-out when the battle over the debt ceiling begins again in February. However, let’s not forget last April and last August, when there was the real possibility that troops weren’t going to get paid until Congress acted. Cutting expenses and increasing savings is always a good idea, but we’ve got just about seven weeks to take positive action for a known threat.
Let’s hope this is the last update for weeks, and we can get back to discussing more interesting issues like scholarships and crazy spending!