Working a new Budget when Taxmaggedon strikes.

[Marionnette]

What is the marriage penalty?

I got married 4 years ago, the first year DH was a student most of the year, and the next 3 it's seemed like our tax % has gone down every year. I have no concept of what our taxes would be like if the current breaks disappear.

It refers to a glitch in the tax code where a married couple with both spouses working would have a higher tax liability when filing jointly than two individuals would pay if they file separately. Not every married couple is affected and the number of those who are affected would vary based on each year's tax rates.

 

[SaraJayne]

OP, I understand you being concerned about it.

DH and I have looked into it and if all the supposed changes go into effect, we will lose over $7,000 worth of income next year.

No, we aren't panicking, but we are aware of what may possibly happen come Jan. 1st and we are prepared.

 

[RitaE]

We are in the fortunate position that a good chunk of my DHs income comes from a year-end bonus. I always sit down right before that check and do a quick run through of our taxes and then adjust the bonus withholding to negate any huge shortages.

I personally suspect the FICA reduction will be renewed for 2013 if not permanently. The economy is still quite anemic and every wage earner suffering through a 2% cut would be hurtful to any growth.

The rest is going to be up in the air as we go through another "Who isn't paying enough in taxes?" battle next year. It'll be a contentious show for sure.

 

[ilovemk76]

We are in the fortunate position that a good chunk of my DHs income comes from a year-end bonus. I always sit down right before that check and do a quick run through of our taxes and then adjust the bonus withholding to negate any huge shortages.

I personally suspect the FICA reduction will be renewed for 2013 if not permanently. The economy is still quite anemic and every wage earner suffering through a 2% cut would be hurtful to any growth.

The rest is going to be up in the air as we go through another "Who isn't paying enough in taxes?" battle next year. It'll be a contentious show for sure.

I hope not!! Under funding SS is a huge mistake. It will just go insolvent even earlier!

 

[Colleen27]

What is the marriage penalty?

I got married 4 years ago, the first year DH was a student most of the year, and the next 3 it's seemed like our tax % has gone down every year. I have no concept of what our taxes would be like if the current breaks disappear.

Two things: First, the standard deduction for a married couple filing jointly was, prior to the Bush cuts, 167% of the individual standard deduction rather than 200% (in practical terms, about $2000 more income is taxable). Second, the line between the 15% and 25/28% bracket for married filers is 167% of the income limit for single filers, rather than double it.

The first bit affects every married couple who doesn't itemize, the second affects only those with taxable income of over about 60K.

 

[RitaE]

I hope not!! Under funding SS is a huge mistake. It will just go insolvent even earlier!

That's true. But millions of people out of work and not paying into SS at all doesn't help much either.

 

[Colleen27]

I hope not!! Under funding SS is a huge mistake. It will just go insolvent even earlier!

I suspect that's a question far more complicated than just percentages... You know, the old Econ 101 example of selling ten pizzas at a $3 profit per pie vs selling twenty at a $2 profit. If a lower rate has effectively boosted consumer spending and therefore hiring it could mean a bigger bottom line - more people working and paying at the lower rate being better than fewer people paying a higher rate.

 

[ilovemk76]

I suspect that's a question far more complicated than just percentages... You know, the old Econ 101 example of selling ten pizzas at a $3 profit per pie vs selling twenty at a $2 profit. If a lower rate has effectively boosted consumer spending and therefore hiring it could mean a bigger bottom line - more people working and paying at the lower rate being better than fewer people paying a higher rate.

It was not done for that reason. It was done when the "make work pay " expired. Bad idea than and bad idea now.

 

[Colleen27]

It was not done for that reason. It was done when the "make work pay " expired. Bad idea than and bad idea now.

I don't see much point in debating the reasoning behind a decision that is done and over with. The better approach would be to evaluate the effect of the change over the time it has been in effect and compare that to projected consequences of reverting to the original rate. A spending slowdown right now would be disastrous at a time when we're still not adding enough jobs to support an economic recovery.

 

[ilovemk76]

I don't see much point in debating the reasoning behind a decision that is done and over with. The better approach would be to evaluate the effect of the change over the time it has been in effect and compare that to projected consequences of reverting to the original rate. A spending slowdown right now would be disastrous at a time when we're still not adding enough jobs to support an economic recovery.

We have had the tax breaks I for three years and the unemployment rate is no where near where they said it would be at this time. It did not work so we should abandon the idea.

 

[MomToOne]

While there is a lot of debate over extending the Bush tax cuts for just the middle class vs. everyone vs. other flavors I'm sure, there is not much real debate going on about the FICA 2% cut expiring (some wishful thinking but not more than that). It was meant to be a very short term, temporary thing. I highly doubt it will be extended. Budget now for the increase - if I'm wrong, you will be pleasantly surprised and have some extra cash to play with. But I bet I'm not wrong

 

[jsmith]

actually you dont have some extra cash to play with-you had better be saving it for retirement. Social Security payout is in fact limited not only by other income but by what you paid in-this "tax cut" very nicely reduced what every person who pays into SS now will be able to draw later. Its going to be expensive for us if the cuts are allowed to expired-but realistically-you dont cut revnue and increase spending which is what washington has been doing for sometime. There are many issues facing the economy starting January 1-this is only one of them.

 

[MomToOne]

actually you dont have some extra cash to play with-you had better be saving it for retirement. Social Security payout is in fact limited not only by other income but by what you paid in-this "tax cut" very nicely reduced what every person who pays into SS now will be able to draw later. Its going to be expensive for us if the cuts are allowed to expired-but realistically-you dont cut revnue and increase spending which is what washington has been doing for sometime. There are many issues facing the economy starting January 1-this is only one of them.

Your benefit is based on the amount you earned over 35 years, not the amount you paid into SSI. And the Social Security fund did not get shorted 2% the last two years, they pulled that amount from the general fund into Social Security instead of from payroll taxes. Now, that 2% basically came from deficit spending so it's not a good thing, but Social Security was essentially funded the same as if there was no 2% cut.