HOW INDIVIDUALS ARE AFFECTED BY THE TAXPAYER RELIEF ACT

FROM: USA.GOV
How Does the American Taxpayer Relief Act Affect You?

On January 2, 2013, President Obama signed the American Taxpayer Relief Act (ATRA) into law. This new law addresses many of the tax issues that were debated by Congress at the end of 2012, and which were referred to by many as the "fiscal cliff."

Here is what the law addressed, and how it could affect you:

The "Bush-era tax cuts"

The new law permanently extended reduced tax rates on income and capital gains and dividends if you make less than $400,000 ($450,000 if you’re married and file jointly). If you make more than that, the marginal tax rate for income beyond the new levels rose from 35 percent to 39.6 percent.

This change also increased the top tax rate on long term capital gains and dividends from 15 percent to 20 percent and made changes to several other tax credits, the marriage penalty and education-related incentives.

The Estate Tax Rules

ATRA permanently extended the estate tax laws as they currently exist, except for the top tax rate, which was increased from 35 percent to 40 percent. Now up to $5 million of an estate’s worth is exempt from taxes.

The American Recovery and Reinvestment Act of 2009 Tax Provisions

The child tax credit, some provisions surrounding the Earned Income Tax credit and an education tax credit, the American Opportunity Tax Credit, were all temporarily extended through 2017.

The Payroll Tax Reduction

There was a two percent reduction in the amount of money you paid through the Social Security payroll tax that Congress put in place in 2010. This tax reduction was not extended as part of ATRA. As a result, the tax rate reverted back to the original amount — 6.2 percent for employees and 12.4 percent for the self-employed. You may notice a change in the amount of your take-home pay in your first paycheck of the 2013 calendar year.

The ATRA also addressed several other issues, including unemployment, Medicare and other health provisions and the farm bill.

7 THINGS TO KNOW ABOUT TAX DEAL

FROM: THE WHITE HOUSE
The Seven Things You Need to Know About the Tax Deal

On the beginning of the New Year, Republicans and Democrats in the House of Representatives joined the Senate in passing the American Taxpayer Relief Act of 2012. That means middle-class families won't see an increase in their income tax rates. We've avoided the fiscal cliff.

On January 1st, President Obama described the agreement as, "one step in the broader effort to strengthen our economy and broaden opportunity for everybody."

"Under this law, more than 98 percent of Americans and 97 percent of small businesses will not see their income taxes go up," he said. "Millions of families will continue to receive tax credits to help raise their kids and send them to college. Companies will continue to receive tax credits for the research that they do, the investments they make, and the clean energy jobs that they create. And 2 million Americans who are out of work but out there looking, pounding the pavement every day, are going to continue to receive unemployment benefits as long as they’re actively looking for a job."

We know that that a lot of people have questions about the deal, so we've pulled together some of the most important facts. Here are the seven things you need to know:

THE FISCAL CLIFF AND HOW IT AFFECTS PAYCHECKS

FROM: U.S. DEPARTMENT OF DEFENSE

Fiscal Cliff Legislation Affects Military, Civilian Paychecks
American Forces Press Service

WASHINGTON, Jan. 4, 2013 - The legislation that President Barack Obama signed Jan. 2 that postponed the fiscal cliff means changes to military and civilian paychecks, Defense Finance and Accounting Service officials said today.

The legislation increases Social Security withholding taxes to 6.2 percent. For the past two years during the "tax holiday" the rate was 4.2 percent.

The increase in Social Security withholding taxes affects both military and civilian paychecks, officials said.

For civilian employees, officials said, this will mean a 2 percent reduction in net pay.

For military personnel, changes to net pay are affected by a variety of additional factors such as increases in basic allowances for housing, subsistence, longevity basic pay raises and promotions. Service members could see an increase in net pay, no change or a decrease, military personnel and readiness officials said.

For military members, Social Security withholding is located on their leave and earnings statement in the blocks marked "FICA taxes" -- for Federal Insurance Contributions Act.

DOD civilians will see the change on their leave and earnings statement under "OASDI" -- for old age, survivors, and disability insurance.

Reserve component members will be the first to see potential changes in their net pay as a result of the law, DFAS officials said. Changes will be reflected in their January paychecks.

Active duty military personnel will see pay adjustments in their January mid-month paycheck and will be reflected on the January leave and earnings statement.

DOD civilians will see social security withholding changes reflected in paychecks based on the pay period ending December 29, 2012, for pay dates beginning in January.

DFAS stresses that all personnel should review pay statements carefully.

SEQUESTRATION ON HOLD

Left:  Pentagon Spokesman George Little

FROM: U.S. DEPARTMENT OF DEFENSE

Legislators Avoid Fiscal Cliff, Delay Sequester Process

By Jim Garamone
American Forces Press Service
 
WASHINGTON, Jan. 2, 2013 - Congress has avoided the fiscal cliff, but Pentagon Press Secretary George Little called on the body to continue efforts to permanently eliminate the threat of sequestration.

The House of Representatives passed a Senate proposal that avoided the fiscal cliff last night. Defense Secretary Leon E. Panetta is pleased Congress acted, Little said, but notes there is more work to be done.

Had Congress not acted, sequestration -- taking an additional $500 billion from the DOD budget -- would have kicked in. The legislation passed yesterday delays that process for two months. Panetta hopes that within that time Congress can find a way to end sequestration once and for all, Little said. If not, sequestration will trigger automatically, leaving little time to make the required cuts.

"While we have whistled by this fiscal cliff, we need to keep our eye on the ball and make sure sequestration does not take effect, ever," Little said.

Little emphasized that the threat of sequestration still hangs over the department.

"It is very important that we avoid sequester permanently," he said. "This can't be a situation where we delay every two months. The specter of sequestration -- of guns to the head -- none of that is anything that we welcome. We hope to avoid it at all costs."

Panetta has repeatedly stressed that sequestration would be devastating to national defense.

The department was preparing for the worst, Little said. If sequestration were triggered, he said, DOD would try to make monetary reductions via furloughs rather than in reductions in force.

"We were prepared to do the prudent thing and tell our civilian workforce that many of them might face some kind of furlough if sequestration had taken effect," Little said.

"Our first assumption is we are not going to try to punish a small group of civilian employees by firing them because Congress can't do its job," he said. "Furlough is the preferred course of action."

The potential for furloughs shows that sequestration isn't just some abstract circumstance affecting only dollars and decimal points, he said.

"This is something that will have an impact on real people, doing real work and on real missions in the department," Little said.

The deal that Congress reached is likely to have some effect on the fiscal 2013 defense budget and for planning for the fiscal 2014 budget, Little said. DOD officials are waiting for guidance on this from the Office of Management and Budget, he added.

U.S. SECRETARY OF DEFENSE PANETTA WARNS ABOUT UPCOMMING SEQUESTRATION EFFECTS

FROM: U.S. DEPARTMENT OF DEFENSE

Panetta Memo Describes Possible Sequestration Effects
By Jim Garamone
American Forces Press Service

WASHINGTON, Dec. 20, 2012 - While many remain hopeful that Congress and the administration will reach a deal that avoids sequestration, Defense Secretary Leon E. Panetta has issued a memo describing the potential implications of going over the fiscal cliff.

Planning for the effects of an across-the-board cut in defense spending as part of the Budget Reduction Act of 2011 "is only prudent," said DOD officials. Under the law, the reductions are due to take place Jan. 2, 2013.

Panetta said it is too early to assess what effects sequestration will have. He did say that it will not affect military personnel or military end strength as President Barack Obama announced his intent to exempt the military personnel accounts from sequestration last summer.

The secretary did clarify the potential implications of sequestration in his memo.

"If it occurs, sequestration will reduce our budgetary resources for the remainder of the fiscal year," the memo says. "These cuts, while significant and harmful to our collective mission as an agency, would not necessarily require immediate reductions in spending."

There is no threat of a government shutdown because of sequestration, Panetta said in the memo.

"Everyone will show up for work on January 3, 2013, and continue to drive on," said Army Lt. Col. Elizabeth Robbins, a Pentagon spokeswoman.

The memo states that there will be no immediate civilian personnel actions such as furloughs.

"Should we have to operate under reduced funding levels for an extended period of time, we may have to consider furloughs or other actions in the future," Panetta said in the memo. "But let me assure you that we will carefully examine other options to reduce costs within the agency before taking such actions."

If the department does need to take these actions, affected employees will receive all appropriate notifications, the secretary noted.

The Defense Department is already reducing its budget by $487 billion over 10 years. The Budget Control Act calls for a further $500 billion in cuts at DOD unless Congress and the administration pass a new law averting it.

"Sequestration was never intended to be implemented and there is no reason why both sides should not be able to come together and prevent this scenario," Panetta wrote.

CHAIRMAN OF THE U.S. HOUSE WAYS AND MEANS COMMITTEE'S VIEWS ON THE FISCAL CLIFF, HIGHER TAXES, AND FIXING SOCIAL SECURITY

FROM: CONGRESSMAN DAVE CAMP'S WEBSITE
Camp Statement on the Fiscal Cliff

Monday, December 10, 2012

Midland, MI – Today, Congressman Dave Camp (R-MI) released the following statement in response to President Obama’s event in Redford, MI.

"Today the President restated his same old demand to raise taxes on nearly 1 million small businesses. The time for campaign events is over, Michigan families and small businesses are at risk. Raising taxes will not create jobs. Tax reform, however, will create jobs here in Michigan and across America and produce more revenues – something the President demands. I urge the President to abandon his push for higher tax rates that threatens middle-class jobs. Comprehensive tax reform, which is supported by Republicans and Democrats in Congress, can help solve both the fiscal and jobs crisis we face in this country."

Social Security

Social Security must be protected for all Americans, especially those who are retired or near retirement age. The Social Security Trust Fund, however, faces significant financial challenges in the coming years. Without Congressional action, retirees could see reduced benefits as soon as 25 years from now.

The biggest strain on the Social Security Trust Fund is the simple fact that individuals live much longer lives today than in 1935, and the program has never truly been updated to keep pace with America’s demographic changes. Successfully fixing Social Security means that Americans who retire in 2035 will not be faced with a system that was built for the world of 1935, but a system that has been modernized to meet the realities of the 21st Century.

While adjustments to the system must be made sooner rather than later to ensure the Social Security Trust Fund remains solvent, I believe any reforms must assure Americans they will get back from Social Security what they have paid into the system over their lifetime. I also believe that the current system should remain in place for those at or near retirement age, who would not have time to plan for any changes.

While Congress faces difficult choices in order to improve Social Security’s long term financial outlook, I know this mission can be accomplished in a way that strengthens this vital government program.