It’s harder to say by how much. The answer to that depends on what Congress does in the next couple of weeks.
Let’s say Congress fails to enact a fiscal cliff bill by year-end. In that case, virtually every American’s tax bill will go up—experts say for the middle class, the average tax hike will be $2,200. The new tax bite gets bigger as your income goes up. Current law provides:
- The current 2-point cut in an employee’s share of Social Security taxes expires.
- Tax rates revert to 2001 levels—that means the lowest tax bracket goes from this year’s 10 percent to 15 percent. The highest tax rate goes from 35 percent this year to 39.6 percent.
- Capital gains rates go to 20 percent, from 15 percent.
- Dividends will be taxed as ordinary (wage) income—i.e., up to 39.6 percent.
Marriage penalty relief disappears, child tax credits shrink, estate tax rules go back to 2001 levels ($1 million exemption, 55 percent top rate).
What if Congress does enact an agreement to avert the fiscal cliff? Will your clients' taxes and your taxes go up then?
If your adjusted gross income (AGI) is $250,000/married or $200,000/individual, you will pay an additional 3.8 percent on investment income, and an additional 0.9 percent in Medicare taxes with or without an agreement. And, an agreement is likely to include new taxes on “the rich”—that could be AGI of $200,000/$250,000, or it could be higher—maybe $500,000 or even $1 million. Those new taxes could include higher rates, and/or limits on at least some tax expenditures.
In 2013, Congress will tackle tax reform—maybe only for business (corporate and pass-through) income, or maybe for individuals as well. Once again the tax rules that apply to life insurance, annuities, pensions, retirement savings, and employer-provided health insurance and other benefits will be at risk.
You can help prevent some (or all) of these adverse consequences. Plan to join your colleagues at NAIFA’s Congressional Conference in Washington, DC April 8-9 to tell your Representative and Senators how important these rules are to the security of 75 million American families. You can make a difference. Please register to participate today.