What Does the Fiscal Cliff Mean?
Most everyone has heard the buzz over the so-called “fiscal cliff.” The term referred to the automatic expiration of tax cuts that had been in place for years during the Great Recession, and the automatic implementation of billions of dollars in cuts to government budgets. Most people agreed going over the cliff would be a very bad thing, so Congress hammered out an 11th-hour deal to avoid it.
Under the deal, your federal taxes will almost certainly increase. That’s because you’ll no longer get a 2 percent reduction in Social Security tax that everyone was receiving. With the fiscal cliff deal, Social Security tax has increased to 6.2 percent for wage-earners.
More than three in four Americans will pay more in taxes in 2013, CNNMoney reports. Wealthier Americans also will have to pay an additional 5 percent on capital gains and dividends, which rises to 20 percent this year.
The dip in your take-home pay may have you scrambling for ways to compensate, and one option many people may consider will be to fall back on credit. However, going into debt – or deeper into debt – to compensate for less income is a slippery slope.
One of the best ways to avoid getting more credit card debt is to look for other ways to manage the change in your income. You may have the option to take a second job for a few hours a week to make up for the shortfall. Definitely, you should reassess your budget and make adjustments to your spending habits. It might also help to learn more about how the changes in tax laws will affect your income. You can find plenty of free online calculators that help people estimate their tax burden and stay on top of finances. Finally, talk to your current employer’s payroll department to see how changes will affect your take-home pay.