We all know by now that the 2% payroll tax cut is eliminated. Why we all didn’t know that is beyond me but it took people by surprise. The Obamacare taxes have already been dealt with in prior articles on the site so I won’t deal with them in this post, but I think it important to talk about the fiscal cliff hidden taxes people might not know about until next April. [Tax Policy Center]
There are a number of new taxes such as the rate increase for those making $400,000 and up but those who thought the middle class was skating should think again. There is a phase-out of taxpayer’s itemized deductions and personal exemptions (PEASE and PEP) at increased levels of income. It kicks in for married couples filing separately at only $130,000. It hits single taxpayers at $250,000 [which does include small business owners].
The AMT is another misunderstood tax. If you thought you had the same reprieve as everyone else making under $400,000, you were probably wrong because you are phased-out from using the exemption they were given by virtue of your higher income.
Worse yet, your four personal exemptions and state tax deduction are not permitted in computing your income that is subject to the AMT.
In addition, the AMT is a flat 26% rate on income up to $175,000 and 28% thereafter so you get no benefit from the continuation of the lower marginal tax rates when you figure out your AMT bill. Whatever your AMT liability was before, it will continue because even though your regular tax liability is lower, your AMT liability remains the same and you owe the higher of the two taxes. [Forbes]