Tax Calculator (Post Fiscal Cliff)

The good folks at the Tax Foundation have put together a comparative tax calculator to show what you would have if the country had gone "over the cliff."

This great tool can be found here.

Tax Policy Calculator: Updated to show Republican, Obama and full expiration scenarios

The Tax Foundation has updated their interactive tax calculator which can be found here. This is a fantastic tool that will allow everyday taxpayers to run their own numbers through the calculator to see how they will fair alternatively under the Republican proposal, the Obama proposal and under the full expiration of Bush-era tax cuts.

The Tax Foundation explains the calculator.

"We've updated our interactive tax calculator at www.mytaxburden.com to reflect these new policy scenarios. The left column ("Republican Proposal") assumes passage of H.R. 8 (full extension of Bush tax cuts but not stimulus bill ones), as well as repeal of the health care bill (which includes new payroll taxes on high income earners scheduled to go into effect next year) while the right column ("Obama Proposals") assume that the changes proposed in President Obama's budget are adopted: extension of the stimulus bill provisions as well as the Bush-era tax cuts, but only for filers making under the thresholds."

I highly recommend that you run your numbers to see how your tax liability might change.

The Tax Foundation explains the changes here and summarizes:

"Very low-income filers, as well as filers receiving tax credits for college tuition, are likely to do better under the Obama/Democratic plan; very high-income filers are likely to do better under the Republican plan. For the vast majority of people, income tax liability will be the same under both plans."

Tax Calculator.

Table of tax parameters and rates under each scenario.

Payroll Tax Cut Extended!

In the waning days of 2011, Congress passed, and the President signed, a bill to extend the 2 percentage point payroll tax cut – through February.

Congressional fights over this very temporary cut are likely to heat up quickly as the new February 29 deadline fast approaches.

But, as a result of the 2011 payroll tax cut (and the ongoing temporary cut) the Social Security Trust Fund can no longer cover its benefit payments from net payroll tax contributions.

From a Washington Post Article:

For the first time in the program's history, tens of billions of dollars from the government's general pool of revenue are being funneled to the Social Security trust fund to make up for the revenue lost to the tax cut. Roughly $110 billion will be automatically shifted from the Treasury to the trust fund to cover this year's cut, according to the Social Security Board of Trustees. An additional $19 billion, it is estimated, will be necessary to pay for the two-month extension.

Therefore, America is now at a point where payroll tax contributions to the trust fund are no longer sufficient to cover benefit payments, and the deficiency has to be made up by the general fund. This change makes Social Security's troubling numbers even more dire.

2012 Tax Brackets!!!

Next Year's Tax Brackets:

According to the Tax Foundation: 2012 Tax Brackets should look as follows:

Table and all data courtesy of the Tax Foundation accessible in the article which can be found here.

Key Tax Parameter Amounts for 2012
Tax Parameter	2011 Amount	2012 Amount
Standard Deduction
For singles	$5,800	$5,950
For married filing jointly	$11,600	$11,900
For heads of households	$8,500	$8,700
For married filing separately	$5,800	$5,950
Personal Exemption	$3,700	$3,800
Tax Bracket Thresholds for Single Filers
10% rate	$0	$0
15% rate	$8,500	$8,700
25% rate	$34,500	$35,350
28% rate	$83,600	$85,650
33% rate	$174,400	$178,650
35% rate	$379,150	$388,350
Tax Bracket Thresholds for Heads of Households
10% rate	$0	$0
15% rate	$12,150	$12,400
25% rate	$46,250	$47,350
28% rate	$119,400	$122,300
33% rate	$193,350	$198,050
35% rate	$379,150	$388,350
Tax Bracket Thresholds for Married Filing Jointly
10% rate	$0	$0
15% rate	$17,000	$17,400
25% rate	$69,000	$70,700
28% rate	$139,350	$142,700
33% rate	$212,300	$217,450
35% rate	$379,150	$388,350
Tax Bracket Thresholds for Married Filing Separately
10% rate	$0	$0
15% rate	$8,500	$8,700
25% rate	$34,500	$35,350
28% rate	$69,675	$71,350
33% rate	$106,150	$108,725
35% rate	$189,575	$194,175
Source: Tax Foundation calculations using BLS CPI-U Data

Payroll outsourcing? You are still responsible!

Do you outsource your business’s payroll?

Many business owners choose to outsource payroll related tax duties to third party payroll service providers.  The IRS provides the following advice on Outsourcing Payroll Duties:

• If the employer uses a third party payroll service provider, the employer remains ultimately responsible for his business’s deposit and federal tax payment responsibilities.  Therefore, the employer is liable for all taxes, penalties and interest due and may be held personally liable for his company’s unpaid taxes even if the third-party is at fault for not making timely payments. 
• The IRS recommends that the employer’s address be used (as opposed to the payroll service provider’s address) as the business’s address of record to insure that the employer is timely made aware of any issues with the account. 
• The IRS recommends that employers verify that the payroll service provider is using the Electronic Federal Tax Payment System (EFTPS) so that the employer can immediately confirm online that his business’s payments are timely made.   

Therefore, every employer must remember that they are the party ultimately responsible for their business’s tax payment (and withholding) obligations.