The "fiscal cliff" and your taxes

APPLETON - The "fiscal cliff" talks have bred a lot of uncertainty when it comes to tax rates and if there's no agreement reached, there will be changes.

Barb Bader owns Fox Valley CPA's in Appleton. She told FOX 11 she's worried about the fiscal cliff and so are her clients.

"Clients are very, very concerned.  They will not necessarily notice it until the new tax laws are in place and their paycheck is smaller," said Bader.

Bader told us the first change, if there's no agreement, is that the Bush-era tax cuts will end for all income levels. That means, among other increases, the capital gains tax will go up.

"Going up from 15%, which has been a very good, preferred rate, up to 20%," explained Bader.

But there's more...

"The marriage penalty is coming back," said Bader, meaning some married couples could pay an extra $2,000 in taxes each year.

The estate tax would be set to change as well. According to Bader, right now, inheritances are taxed once they reach $5 million.  If the fiscal cliff changes happen, the estate tax would be lowered to $1 million.

"So if you have more than a million dollars when you die and leave it to your children, they're going to pay taxes at 55% if this law is not changed," explained Bader.

And something that would affect everyone is the Federal Insurance Contributions Act or FICA tax rate. That's the money taken out of your paycheck to fund Social Security. It was cut from 6.2% to 4.2% a few years ago.

'That 2% FICA tax reduction for all employees helped everyone. That's going away and that will have a huge impact on everyone," said Bader.

That alone would mean a person making $50,000 a year would pay an extra $1,000 in taxes.

These changes are all scheduled to take place if there is not agreement by the end of the day December 31st.
"There's so much uncertainty, nobody can give you an answer on what to do, they can just tell you what the uncertainty is," said Bader.