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

• $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.
 

I need to find a wife and kids. Brb

(excellent post)