In our April newsletter "FEDERAL SUBSIDIZED STUDENT LOAN RATES MULTIPLED BY 2" we spoke about the possible doubling of interest rates on Federal subsidized student loans on July 1, 2012 (now approximately less than one month away from today). Since issuing our newsletter about the interest rates as well as speaking about it on the Talk BIG! Live w/Eva & Tia DeShay Blog Talk Radio Program (click here to to listen online Online Blog Talk Show in May 2012), Congress hasn't passed any bill that calls for the extension of the current rate or not (current rate at 3.4%, expected to go to 6.8% come July 1, 2012).
EXPIRATION OF TAX CUTS & THE AFFECTS ON YOUR INCOME
Come January 1, 2013, we could possibly see our prior and current Presidents' federal tax cuts expire causing a negative ripple effect across all American's income/earnings unless Congress takes action to extend the tax cuts or propose a new tax bill. We want to highlight the biggest tax cuts that will expire and how these expirations will affect individuals and families across the country.
1. Just About Everyone's Tax Rates Will Increase - With the expiration of the prior Presidents' tax cuts, we'll see tax rates go up for everyone (not just the rich). If you normally receive a tax refund every year with everything being constant besides the tax increase, your tax refund will likely be smaller than it has been when these tax rates increase. Please see our table below for Single individuals change with the tax rate and click the Other Tables link to see for Married and Head of Household - Other Tables
2. Capital Gains & Dividends Face Increased Taxation - Currently, the max Federal rate on long-term capital gains and dividends is 15%. Beginning January 1, 2013, this 15% tax will go to 20% for capital gains and 18% for gains on assets that were acquired after year 2000 that's been held for 5-years. Dividends will be taxed at 39.6% instead of the 15% today.
*If gain on asset wasn't held for 5 years and purchased after December 31, 2000
3. Phase-Out Rule for Itemized Deductions - This phase-out in the itemized deductions could eliminate up to 80% of your mortgage interest, charitable donations, state taxes paid and qualified mortgage insurance premiums. The phase-out on these deductions will affect higher income earning individuals that have an adjusted gross income of $175,000 for singles and $87,500 for married couples filing separately.
4. Child Tax Credit Sliced in Half - A major issue as many struggling families looked to this credit of $1,000 per child to offset any possible tax liability remaining after other credits and deductions haven't washed out their taxes due. Come January 1, 2013, this credit will be reduced from $1,000 per child to $500 per child.
These are just a few issues individuals and families could be facing come January 1, 2013, if Congressional officials don't take immediate action. Most of the current tax cuts have been around for a decade now and if extended, it will cost the government approximately $1.01 trillion between 2013 and 2015 (based on CBO). Another expiring tax cut also takes place on January 1, 2013 which is the current PAYROLL tax cuts (more specifically the Social Security tax) which was passed by our current President. If not extended, come January 1, 2013, all wage earners will see their Social Security tax payments rise from the current level of 4.2% to 6.2%, which will decrease the amount of pay you bring home each pay. Please see our table below on how the expiring tax rates will affect single individuals.