The election is behind us, but a new uncertainty looms: Taxes.
If Congress and the newly reelected president don't take action, most Americans will see their taxes go up next year. And some are getting twitchy.
"We are getting calls from clients daily," said Scott Cramer, president of Cramer & Rauchegger, an estate planning firm based in central Florida with more than 200 clients. "They are very scared and nervous."
Cramer's clients are primarily concerned with taxes on capital gains, set to increase on Dec. 31, along with other tax hikes as part of the so-called fiscal cliff. The year-end game-changer is happening because tax cuts put into place under President George W. Bush are set to expire and Congress has failed to make a deal for an extension.
President Barack Obama has said he wants to let Bush-era tax cuts expire for the highest-income Americans. That means individuals earning $200,000 a year and families making more than $250,000 will revert back to 1990s income tax rates of 36 percent and 39.6 percent, respectively.
For middle-class earners, the president said he supports keeping current tax rates. But the middle-class doesn't escape the cliff. New taxes created under the Affordable Care Act go into effect for 2013 tax bills, including a 3.8 percent tax increase on investment income.
More immediately, the alternative minimum tax could also slam as many as 30 million American families on their 2012 tax bills unless it’s patched by Congress. This is an additional flat tax for those making a certain income. Without a patch, it may add thousands to the tax bill for some middle-class families, tax experts said.
Even if the Bush-era tax cuts are extended for millions of Main Street Americans, they will feel tax bill sticker shock on Jan. 1. The end of the payroll tax break will nibble away at income for as many as 160 million Americans. That means an American earning $50,000 annually will pay at least $80 more per month in taxes.
Add to that, there may be higher tax-withholding by employers unless the IRS updates its withholding tables, tax experts said.
So what's the bottom line for taxpayers who don't know what their bills holds next year?
“Don’t spend every penny in your paycheck this side of New Years,” said Robertson Williams, tax policy expert and senior fellow at the Tax Policy Institute. "There is a lot of political hardball to be played over the next eight weeks."
