Between the new budget agreement signed into law on Jan. 2 by President Obama and all the new taxes associated with Obamacare, Americans are facing a whole rash of additional taxes this year despite promises to the contrary.
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According to the budget agreement, income tax rates will remain the same for most people. However 77 percent of Americans will be affected by the rise in payroll taxes that will increase from 4.2 to 6.2 percent this year on all earned income up to $113,700. That means a smaller take-home check for most.
At the same time, Congress granted a five-year extension of tax breaks for lower-income families, including the child tax credits and earned-income tax credit. Those credits eliminate income tax liability for many lower-income families.
The budget deal also restored unemployment benefits for those who have already used up their 26 weeks but remain unemployed. The agreement allows them to receive additional benefits for up to 47 weeks.
However, while income taxes remained the same for lower and middle class Americans, they will rise for high income households. The increases will be in the form of more limits on the amount of income people can shelter from federal taxation, a rise in the top marginal tax rate from 35 to 39.6 percent, plus the new tax rate for capital gains and dividends will rise from 15 to 20 percent.
Changes were also made to the estate tax, which primarily benefits wealthy Americans with more than $5 million to pass on to their heirs. An inheritance above that amount will be taxed at a rate of 40 percent rather than 35 percent.
Part of the debate during budget negotiations was to ensure that the wealthy pay their “fair share” of taxes. However, the top 20 percent of earners already supply 68 percent of all federal income tax revenue, according to a Congressional Budget Office study done in 2009.
Further, since the budget agreement was signed, Democratic leaders have said they want to raise as much as $1 trillion in new revenues through tax reform to make up for whatever spending cuts the Republicans make.
Other federal taxes kicking in this year are related to passage of Obamacare (The Patient Protection and Affordable Care Act) including: a 2.3 percent excise tax on the gross sales of certain medical devices; a cap of $2,500 on Flexible Spending Accounts, which are often used by parents with special needs children to pay for their education; a rise from 7.5 to 10 percent in the adjusted gross income threshold that medical expenses must reach to qualify for a deduction; a .9 percent tax on earned income in excess of $250,000 for families and $200,000 for individuals; a new 3.8 percent surcharge on capital gains and dividends on high earners; elimination of the corporate deduction for retirees prescriptions; and subjects small businesses organized as “Sub-Chapter S” corporations to high marginal tax rates up to 39.6 percent, limits their deductions, and adds the Obamacare surcharge on capital gains and dividends.
State tax increases
California residents face new state taxes as well.
Thanks to passage of Proposition 30, on Jan. 1 of this year the state sales tax went from 7.25 to 7.5 percent. In Placerville and South Lake Tahoe, it is 8 percent.
Proposition 30 also raised the tax bracket for upper income residents with the hike retroactive to 2012. The new rates apply to anyone making $250,000 a year or more. For residents at the top of the scale — those with an income of $1 million or more — the rate tops out at 13.3 percent.
According to the California Taxpayers Association, with the passage of Proposition 30, California now has the highest state sales tax, the second highest gas tax, the highest top personal income tax rate, and the 15th highest property taxes in the nation. It also has the highest corporate tax rate in the Western United States.
Aside from the new or changed taxes resulting from the recent budget agreement, there is a long list of taxes and fees Americans are already paying including: federal, state, and local income taxes; Social Security and Medicare taxes; property taxes; state sales tax; driver’s license renewal and car registration fees; taxes on TV Cable/Satellite; the federal telephone surtax, excise tax and universal surcharge; the state telephone excise tax and surcharge; gas/electric fees/and or taxes; water/sewer fees and/or taxes; cigarette taxes; alcohol taxes; federal and state gasoline taxes; federal and state inheritance taxes; gift tax; marriage, birth, death, hunting, fishing, bike, dog, etc. licenses; state park fees; watercraft registration and license; sports stadium tax; air transportation tax; new car surcharge; yacht and luxury boat taxes; school tax; road tax; use taxes; waste management tax; individual and small business surtax.
In addition there is a long list of business taxes and fees, including federal and state corporate income taxes; tax registration for a new business; employer Social Security, Medicare, federal and state unemployment tax; business registration renewal tax; Worker’s Compensation tax; the tax on imported/exported goods; oil storage/inspection fees; employer health insurance mandate tax; excise tax on charitable hospitals; tax on health insurers; excise tax on comprehensive health insurance plans; tax on indoor tanning services, tax on medical device manufacturers; tax on innovator drug companies; utility users tax, internet transaction fee; professional license fee; franchise business tax; tourism and concession license fee; wiring inspection fees; household employment tax; biodiesel fuel tax; FDIC tax; electronic waste recycling fee; hazardous material disposal fee; food and beverage license fee; building/construction permit fee; zoning permit fees; well permit tax; sales and use tax seller’s permit; commercial driver’s license fee; occupation taxes and fees; and tobacco taxes.
Contact Dawn Hodson at 530-344-5071 or [email protected] Follow @DHodsonMtDemo on Twitter.