'Fiscal Cliff' Deal: What Will It Mean for You?

Article excerpt

Your taxes are probably going up, but not as much as they would have without "fiscal cliff" deal.

That's the short summary of what's in store for US households now that a fiscal bargain between the White House and Congress has been reached.

The welcome news for personal pocketbooks is that most Americans will see no change in their income-tax rates.

But the amount of taxes paid will still rise, for two major reasons: First, workers will owe 2 percent more of their paychecks to the government in 2013 because Congress is allowing a temporary payroll-tax cut to expire. Second, tax rates are rising for households that earn more than $450,000.

The goal of the legislation was to reduce federal deficits while also avoiding the so-called "cliff" of big tax hikes and federal spending cuts that had been scheduled for Jan. 1. If Congress took no action, the resulting shock to consumer pocketbooks could have thrown the US into recession, economists warned.

How will the fiscal bargain affect you? Here are some of the big possible ways, with income taxes listed last (but not least in importance):

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The long-term unemployed. Emergency unemployment insurance benefits will be extended for a year, helping an estimated 2 million out-of-work Americans.

Milk drinkers. Dairy prices won't spike, thanks to this legislation. Without action to extend 2012 policies, milk prices appeared set to surge as US law reverted to a 1949 pricing system. To families that already feel like milk is a personal budget- buster, this prospect was so fearsome that it had its own name: the "dairy cliff."

Home sellers. For legions of would-be sellers whose mortgage balances are larger than the home's market value, the legislation extends important tax relief. Borrowers will still be able to arrange a "short sale," when the lender agrees to accept less than the full balance due on the mortgage, without having to treat the forgiven debt as taxable income. That's good news for the housing market, since short sales are a major alternative to foreclosure for would-be home sellers.

Working people. The expiration of a temporary payroll-tax cut means that workers will again pay 6.2 percent of their paycheck toward Social Security, up from last year's level of 4.2 percent. When Medicare taxes are added in, and the share paid by both employers and employees is included, payroll taxes devour more than 15 cents of every dollar in wages.

Inheritors. The estate tax rate will rise to 40 percent, from 35 percent in 2012. The tax will affect estates valued above $5 million. …