Here’s what the fiscal cliff does to our paychecks
I’ve found a great way to tell what happens to our take-home pay if we tumble off of the fiscal cliff on Jan. 1.
It's a well-put-together interactive chart created by Arizona-based Symmetry Software.
These guys specialize in computer programs that calculate how much tax should be withheld from our paychecks, so I think they know what they’re doing.
The graph compares pre- and post-fiscal cliff take-home pay and taxes for annual incomes ranging from $5,000 to $300,000.
Pre-cliff estimates are based on current federal tax calculations, while post-cliff estimates rely on pre-Bush era federal calculations from 2001.
What exactly is the fiscal cliff?
It's a mind-numbing combo of tax hikes and spending cuts that are scheduled to take effect on Jan. 1.
If Congress and President Obama can't agree on a better long-term plan to reduce the federal deficit, our take-home pay is in the line of fire.
That's partly because the Social Security tax cut is set to expire, increasing the tax to 6.2% from 4.2%.
Bush-era tax cuts are also set to expire, which will hike tax rates up to their pre-Bush levels (our story on fiscal cliff tax increases can give you the full rundown).
The chart from Symmetry makes it easy to see how those increases will affect your take-home pay.
To use it, you'll need to select a single or married filing status and the number of federal allowances you can claim. The IRS has a withholding calculator that can help you figure out your number of federal allowances.
Hover over your income level on the chart and take a look at the summary box.
Warning: You won't be happy about it.
Let's just say that if we drive over the fiscal cliff, it won't be a complete car wreck, but we'll definitely notice the bump.
For an example, we'll use "Sam," a single individual with one federal allowance making $60,000 per year.
The graph shows that Sam currently pays $12,908 in federal taxes annually.
If the federal tax and spending changes revert back to pre-Bush levels, Sam will pay $15,101.
That's an extra $2,193, or a 16.99% increase.
A married couple with kids (four total deductions) making $80,000 per year is currently paying $12,095 in federal taxes.
Falling over the cliff would bump their federal tax rate by 20.42% to $14,565, according to the graph.
If you're married, at least you share that extra responsibility with a spouse.
With less than two months until New Year's Day, I'm starting to sweat.
I think we're all hoping that Congress and the president can reach a deal soon.
Until then, I'll be sending this interactive graphic around to family and friends. You can check it out here: http://www.paycheckcity.com/fiscalcliff/cliff.html