How will the Expiration of the Bush Tax Cuts Affect Me?
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The Bush Tax Cuts originally enacted in 2001 and 2003 are set to expire at the end of this year. Originally set to expire in 2010, President Obama signed legislation to temporarily extend the Bush Tax Cuts through 2012. It is highly unlikely that there will be an extension on the Bush Tax Cuts or any other type of tax reform prior to the election in November and it is unknown whether any such legislation will be enacted before the end of the year.
So how does the expiration of these tax cuts affect the average American? Currently the lowest tax rate at the federal level is 10% and that would be increased to 15%. Additionally, for married taxpayers who earned between $58,900 and $70,700 during 2012 (those numbers would be adjusted for inflation for 2013), the tax bracket would increase from 15% to 28% as a result in the increase in marginal rates as well as the decrease in the income level for married taxpayers at this level. For single taxpayers earning more than $85,650 and married taxpayers earning more than $142,700, the tax rates will all increase by a minimum of 3% with the highest
rate jumping from 35% to 39.6%.
Long-Term Capital Gain rates will increase from 15% to 20%. Higher-income taxpayers will be subject to an overall limitation on itemized deductions and will also be subject to a phase-out of personal exemptions (which are currently $3,800 per exemption).
Married taxpayers will experience a decrease in their standard deduction by about $2,000 at all income levels. The above the line student loan interest deduction will only be allowed for interest paid during the first 60 months of the loans and will phase out at much lower levels than before ($75,000 for married taxpayers and $50,000 for all other filers). Child Tax Credits will decrease from $1,000 to $500 per child and Dependent Care Expense Credits will decrease by $800 for one dependent and $1,200 for two or more dependents.
The result of all of these changes means that for most Americans, tax rates will increase significantly during 2013 if no action is taken to extend the Bush Tax Cuts or to offer some other sort of tax reform.
Here is a helpful tax calculator that shows the user what their taxes would be if the Bush Tax Cuts expire, and what they would be under the Republican Proposal and under the Obama Proposal.Source: www.jdsupra.com