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Understanding the Fiscal Cliff

This is certainly a very busy time of year for many folks that wear the hats of Chief Financial Officers (CFO) and/or Human Resource Directors.  While dealing with heavy loads during their daily responsibilities, they may find that it’s difficult to understand how various pieces of legislation may impact their business.

Image of Cliff: via Creative Commons (https://www.flickr.com/photos/51773358@N00/47972748/)To provide some help for folks that find themselves in that situation, I’d like to breakdown a topic that’s certainly quite hot right now — the “Fiscal Cliff”.

What is the Fiscal Cliff?

In an attempt to put it quite simply, the Fiscal Cliff refers to tax increases and spending cuts that will occur starting on January 1st, 2013 if the tax cuts put in place by former President George W. Bush expire.

As you may imagine, those actions have the potential to greatly impact the U.S. economy. However, there are varying views of how dramatic the impact would actually be.

If Congress does not agree on a solution prior to January 1st, here are some of the tax changes that will go into effect:

  • Individual income tax rate increases – ranging between 3 and 5 percent
  • Dividend tax rate increase – 15 percent increased to 39.6 percent
  • Capital gains tax rates – 15 percent increased to 20 percent

How Health Care Reform Fits In

Unrelated to the fiscal cliff, January 1st, 2013 also marks the date when new tax rates provided for by the health care reform law are set to take effect.

This includes an additional 0.9 percent payroll tax on income for filers that are classified as high wage-earners (Individual = $200,000 / Joint = $250,000) as well as an additional 3.8 percent tax on investment income.

Will these Tax Rates Impact Your Business?

In regards to avoiding the fiscal cliff, Congress is currently working on various options. Until a decision is made, it is truly not clear how companies like yours may be affected.

Of course, uncertainty and fear often has the effect of causing businesses to hold off on scheduled or potential spending.

For further updates on the Fiscal Cliff, and other tax rates related to Health Care Reform, please make sure to turn to CBG Benefits. We will continue to breakdown how these situations may impact your business.

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Posted in: Legislation

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