How falling over fiscal cliff could impact YOU - KWWL - Eastern Iowa Breaking News, Weather, Closings

How falling over fiscal cliff could impact YOU

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DUBUQUE (KWWL) -

In an address to the nation Friday afternoon, President Barack Obama said leaders are still working toward a compromise over the fiscal cliff. That came shortly after the nation's top officials met earlier that day to discuss negotiations on legislation to avoid the dreaded fiscal cliff, which loomed just three days away as of Friday.

Locally, everybody from employers and employees to accountants are wondering what lies ahead for them.

Julia Theisen is in the business of comfort at Body and Soul spa and wellness center in Dubuque, but the looming fiscal cliff has put her in a very uncomfortable position.

"After the election, we e-mailed all of our employees to say, 'Hey, you could notice a significant difference with your tax withholding, but now everybody's just in limbo, just waiting," she said at her business Friday afternoon.

"I don't think our employees are really fully aware of what it means for them, and I don't think anybody will until it actually hits us," Theisen said.

Tom Wagner is a tax consultant at Wagner Accounting & Tax Service, Inc. in Dubuque.

"The most important thing, I think, for people to know is that taxes are going up," he said Friday afternoon.

Regardless of a deal, Wagner said, the payroll tax cut extension will likely expire. That dictates the amount of an employee's pay that goes toward social security.

"That was originally at 6.2 percent. It was like that for years and years and years. It has been cut down to 4.2 percent that the employee contributes from their paycheck to social security for the last two years," Wagner said. "As of now, that is going to expire next week, so everybody is looking at automatically and two percent pay decrease as far as what their take home is going to be."

He said businesses are starting to be affected by the uncertainty, too.

"We've had a lot of options for depreciating equipment right when they purchase it," he said. "Those extenders are going by the wayside. And, again, if something isn't done, we're going to be looking at a pretty big impact."

He said the income tax side of this is where the most uncertainty lies.

"What they call the Bush tax cuts from 2001 and 2003 were scheduled to expire at the end of 2010, and they expired them through '11 and now '12, so when we look at '13, none of those cuts are in effect," he said. "the biggest part of that is probably the 10 percent tax bracket."

He explained. For the first $17,000 a couple makes, for example, they get taxed at 10 percent.

"After that it goes to 15 percent, 25, and so on and so forth," he said.

That 10 percent tax bracket, however, is on the chopping block with the fiscal cliff, meaning everybody would start out at 15 percent income tax level, Wagner said.

"The other big component of it, as far as income taxes go, especially for the individuals, is the alternative minimum tax," Wagner said.

The alternative minimum tax was installed in the 60s, he said, to catch people who were making millions of dollars and not paying any tax due to many deductions.

"But those amounts were never really indexed for inflation so that somebody now-- a family, say, making $100,000 right now that has four kids might see some alternative minimum tax," Wagner said, if the country falls off the fiscal cliff without striking a deal to avoid it.

Wagner said a delay in avoiding the fiscal cliff could push back the IRS tax filing deadline. He said the best case scenario would probably be having Congress extend for another year the cuts that are already in place. While that only "kicks the can farther down the road," as he said, it may help avoid bigger and more immediate problems.

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