Most Americans (and Congress) are finally able to breathe a sigh of relief—albeit temporarily—after the White House and Congress were able to hammer out an 11th-hour deal to avert the so-called fiscal cliff.
Here are the major things in the deal that you need to know about:
Income taxes: The Bush-era tax cuts will remain permanently in place for the vast majority of Americans. Those individuals who make up to $400,000 a year—or families making up to $450,000—are safe. However, those who make more will see their tax rates increase from 35% to 39.6%.
Capital gains taxes: The tax, which is paid on the sale of stocks, real estate, and other capital assets, will increase from 15% to 20% for individuals making more than $400,000 or families making more than $450,000.
Congress’ salaries: Obama had initially lifted the pay freeze, but it will be reinstated. No raise for you, John Boehner.
Tax break extensions: Tax breaks, largely for middle-class and low-income Americans, were extended for five years. That includes the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax credit.
Unemployment benefits: Extended for one year.
Estate taxes: Estate taxes will increase from 35% to 40%. The first $5 million is exempted for individual estates. The Dems originally wanted the rate to be 45% and the exemption to be up to $3.5 million.
Farm bill extension: The bill, extended for nine months, removes the looming threat of a big rise in the price of milk.
“Doctor Fix”—The legislation staves off scheduled cuts to doctors’ Medicare payments for a year. Initially there was going to be a 27% cut in reimbursements to doctors treating Medicare patients.
Here’s what’s NOT included:
The sequester: The sequester—or automatic spending cuts—still has not been addressed and has been put off for two months. Congress still needs to decide what to do about cuts to defense spending and other government programs. This will be a major point of contention, especially with the new Congress.
The debt-ceiling: The $16.4 trillion debt ceiling still must be dealt with, and as of now, has not been extended. The country hit its debt ceiling limit on Monday. The new Congress must come up with “extraordinary measures” in two months or a government shutdown looms. Until then, the Treasury Department will come up with temporary measures to keep the country up and running.
Payroll tax cut: The 2-percentage point cut to the payroll tax expired at the end of 2012 and was not renewed. That means the Social Security payroll tax will increase from about 4% to 6.2%. That’s approximately $1,000 more for a typical family earning $50,000 a year.