Although options remain to reach a retro-active deal, Americans wake up on January 1 to the landscape below the fiscal cliff. Our Megan Cruz met with a local accountant to find out what that means for your bank account.
LATHAM, N.Y. — "Since everybody's rates are going to go up, you're going to pay more taxes out of your paycheck," said Kevin McCoy. He's an accountant with Marvin and Company, P.C. in Latham. He says since Congress has not extended the Bush-era tax cuts, we'll all have less money in 2013.
For a single person making $50,000 a year, he says, "their additional tax starting January 1 for the full year of 2013 would be about $1,925."
And for a couple making about $75,000 a year, their tax bill would go up by $2,600.
The good thing though is McCoy says not all the tax hikes take effect immediately. One that does: the Social Security tax, which will increase by 2%. One that doesn't, the income tax.
"You'll still be paying income tax on the 2012 rates even though those rates technically aren't in effect in 2013," McCoy said. That's because the IRS will not change the withholding rates until Congress decides the new tax agreement.
Since we don't know when that will happen since there's no deadline to adopt the new law, McCoy suggests to start saving.
"If you're a low income taxpayer - let's say below $50,000 - you might want to consider saving at least 5% of your check because that's the potential added cost to your paycheck," he said.
If you can, he says save even more because your tax bill might not be the only bill going up. Business owners may pass on their extra expenses to their customers.
"They'll have to look at ways to increase their profits and the result will be increased pricing," he said.
Another suggestion, pay close attention to your retirement plans. McCoy says all this cliff-diving talk has affected confidence in the stock market.
"When people get looking at their 401K balances and their retirement plan balances and they see the impact of this, that's when it'll hit home," he said.