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Posted: 12/27/2012 10:33:20 AM EDT
I did some "napkin math" for a family of four making the median $61,000 household income.

Here are the big changes starting January 1st:

  • Base 10% tax rate is eliminated and rises to 15%
  • 25% band rises to 27.5% (kicks in at $35K if you're single)
  • 28% band rises to 30.5%
  • 33% band rises to 35.5%
  • 35% band rises to 39.1%
  • Child Tax Credit halves to $500 and becomes "non-refundable"
  • Social Security tax goes from 4.2% to 6.2%
So what does that mean for a family of 4. Well, we'll make some assumptions:
  1. Gross income $61,000 per year
  2. 10% put away to retirement
  3. $400 a month on healthcare premiums
  4. All income on W2
  5. 2 children eligible for the Child Tax Credit
  6. Married filing jointly
  7. Standard Deduction taken due to itemization not being large enough
I did a "virtual paycheck" and came up with this based on current numbers


  • $61,000 gross income
  • $2562 social security tax (4.2%)
  • $885 Medicare (1.45%)
  • $6,100 to 401k
  • $4800 health care
  • $580 total federal income tax.
How come just $580 federal income tax? you may well ask

AGI = ($61,000 - $6,100 - $4800) = $50,100
Four exemptions (4*$3800 = $15,200) reduces taxable income to $34,900
Standard Deduction of $11,900 reduces taxable income to $23,000
The 10% rate is applied on taxable income up to $17,400, and then the rest up to some $70,700 is taxed at 15%.
Federal Income tax due = ($17,400*10%) + ($5600*15%) = $2,580
But the two children result in a tax credit of $2000, so the total tax paid is only $580 for the entire year.

So all this means that our family of four takes home (while providing health insurance and saving 10% for retirement) $46073 a year

Or $3839 a month

So now we go over the fiscal cliff, and their paycheck becomes:

  • $61,000 gross income
  • $3782 social security tax (6.2%)
  • $885 Medicare (1.45%)
  • $6,100 to 401k
  • $4800 health care
  • $2,450 federal income tax.
AGI = ($61,000 - $6,100 - $4800) = $50,100
Four exemptions (4*$3800 = $15,200) reduces taxable income to $34,900
Standard Deduction of $11,900 reduces taxable income to $23,000
The 10% rate is gone, so now all of their income fits in the 15% bracket.
Federal Income tax due = ($23,000*15%) = $3,450
And the child tax credit is halved, so the two children result in a tax credit of $1000, so the total tax paid is now $2,450 for the entire year.

So all this fiscal cliff means that our median income family of four takes home (while providing health insurance and saving 10% for retirement) $42,983 instead of $46073 a year.

$3090 a year more in income taxes.

Or almost $260 a month.

Merry Cliffmas everyone.

Link Posted: 12/28/2012 1:16:10 PM EDT
I need to find a wife and kids. Brb

(excellent post)
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