Basics of Fiscal Cliff Deal

  • The Bush tax cut will expire for high earners  $ 400 000/single and $450000/couples  and their rates rise to 39.6%  from 35 %.
  • The social security tax rate rises to 6.2% for employees ( first $113,700)
  • A permanent increase in taxes in capital gains and dividends to 20% but only for those in the $400 000 and $ 450 000 couple brackets.
  • Tax increases on estates over $ 5 million, from 35% to 40%.
  • Permanent indexing for alternative minimum tax.

 

Payroll Tax Cut Temporarily Extended until Febuary 29, 2012

On Dec 23, 2011, the IRS issued a news release announcing that nearly 160 million employees will benefit from the extension of the reduced payroll tax rate that has been in effect for 2011. The two percent payroll tax cut from 6.2% to 4.2% is temporarily extended for wages paid through Feb 29, 2012. The reduced Social Security withholding will have no effect on employees’ future Social Security benefits.