Congress returned this week and many hoped their schedules would consist of how to deal with the fiscal cliff. Instead, they have been busy voting on a bill on hunting and fishing on federal land and commemorating a coin in honor of Mark Twain. Not to discount either of those, but the fiscal cliff is a critical issue and a decision must be made – and fast.
We can only hope that there have been some “behind closed door” discussions of the incredibly important topics about to hit every tax-payer in just 6 weeks – the looming combination of expiring tax cuts and required spending cuts.
102 tax provisions comprised of reduced taxes and credits will expire on December 31, 2012. A tax extension bill with bipartisan support is floating around Capitol Hill, but without a corresponding revenue generating bill, the extension bill can’t be introduced. This extension bill accounts for 51 of the expiring tax provisions at a cost of $200 billion. Incidentally, one of the most important issues to be addressed is creating a patch for the Alternative Minimum Tax (AMT) that if not corrected, will cause 28 million households to have a new tax to pay come January 2013. Steven Miller, acting IRS commissioner, told reporters this week that if a patch is not passed in Congress prior to the end of the year, more than 60 million taxpayers may not be able to file their returns until March, as the IRS will need to recalculate their processing systems – an administrative nightmare.
This AMT patch alone will cost $100 billion. This tax meant more for the higher income tax-payers, was never intended to hit the middle class – but will force the middle class to pay an average of an additional $3,700 in taxes in 2013. Unlike the regular income tax, the AMT is not indexed for inflation. Thus, even more taxpayers will owe AMT as that liability rises relative to regular tax liability (currently, 26% on the first $175,000 and 28% on any excess).
In a time when taxpayers don’t need less in their paychecks, this is a critical issue that you and your employees need to understand. There will be less confidence in buying and essentially effects your business no matter what.
It’s time to convince Congress to act on passing an AMT patch!