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Get Ready to Pay Thousands of Dollars More in Taxes

Get Ready to Pay Thousands of Dollars More in Taxes In this tough economy, most people don't have a whole lot of spare money floating around. Yet unless Congress acts soon, millions of Americans are looking down the barrel at expiring tax breaks that could leave you sending thousands of dollars more to the IRS.

The biggest culprit: short-term extensions of tax breaks, many of which expired at the end of 2011.

Lawmakers have gotten in the habit of waiting until the last minute to extend many of these programs, but last year, they ran out of time. So now, you can't be sure how much your taxes will go up this year -- and unfortunately, there's no immediate relief in sight. Even worse, there's an even bigger looming deadline at the end of 2012 that could really crush your finances in future years.

Your Incredible Shrinking Paycheck

One big item at issue is the reduction in payroll taxes. Last year, employees got a 2 percentage point break in their Social Security taxes. Although Congress extended that break through Feb. 29, after that, the rate is set to go back up to 6.2% -- costing a family making $60,000 a year about $1,000 in extra taxes.

But a host of other lesser-known provisions could also have a big impact on your finances.

For example, if you live in a state with no income tax, you've been able to deduct sales tax that you pay -- but that option expired Dec. 31. So did a deduction for tuition and related educational expenses.

Another important tax break that's late in getting renewed -- assuming it does -- is the higher exemption from the dreaded alternative minimum tax. Originally envisioned as a way to capture at least some tax revenue from ultra-rich taxpayers who took advantage of other provisions to pay very little in taxes, the AMT now hits an estimated 3.8 million taxpayers. The number of people paying AMT would skyrocket by as much as 30 million if lawmakers don't get around to passing their annual "patch" in time -- and the extra tax bill could come to $8,000 for some of those taxpayers.

The Big Deadline

An even larger hit looms: At the end of 2012, a huge number of tax cuts from the early 2000s are set to expire:
  • The current 10% tax bracket would disappear, rising to 15%. That would cost even low-income taxpayers as much as $870 a year. Other brackets would also rise, creating cascades of higher tax bills as you rise up through the tax tables.
  • Several credits could also disappear or get cut. Credits for adoption expenses, child care, and the popular child tax credit are slated to fall sharply in 2013 and beyond. Because many people take these credits into account in figuring out how much tax to have withheld from their paychecks, workers could see refunds shrink or actually end up surprised to owe money to the IRS as a result of their reduction.
  • On the investing side, lower rates that apply to some stock and mutual fund dividends are set to go away, while rates on capital gains would rise slightly. Although many see these solely as breaks for the rich, the current provisions actually allow lower-income taxpayers to pay no tax at all on dividend and capital gain income.
Will the Worst Happen?

In past years, Congress has usually gotten around to extending tax breaks eventually. Even now that 2012 has begun, lawmakers can always go back and pass laws retroactively returning those breaks effective Jan. 1.

But as we've already seen with the payroll tax cut, an election year raises the potential for grandstanding and political tactics from legislators from every political party. That makes it far from a sure thing that you'll get relief in time to save you from a big rise in your tax bill for 2012.

For more on taxes and your money: Motley Fool contributor Dan Caplinger hates big tax bills. You can follow him on Twitter here.

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How to File Taxes with IRS Form 1099-MISC

If you receive tax form 1099-MISC for services you provide to a client as an independent contractor and the annual payments you receive total $400 or more, you'll need to file your taxes a little differently than a taxpayer who only receives regular employment income reported on a W-2.

What If I Did Not File My State Taxes?

At the time of this writing, the only states that do not charge a state income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. If you live or earn money in one of the other 41 states or the District of Columbia, you may need to file a state income tax return by April 15. It is a separate and independent requirement from filing your federal tax return and failure to file it on time may result in interest and penalty charges.

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Face it. We all know the current taxation system is a convoluted mess and unsustainable.
All past effort's to "fix it " have only resulted in a bigger mess and now thousands of pages
of tax code that by anyone's estimation is incomprehensible. I submit the 10/10/10 plan.
No tax on the first 10 K per person in the household.
10% flat tax on all earnings after that.
10% to of all earnings after that to recognized charitable organizations. This tax plan is
designed to afford the Govt it's funds to provide it's constitutional services to the country
and get the charities back into the social services work that they were always intended to do.

February 27 2012 at 9:01 AM Report abuse rate up rate down Reply

I would like to see the tax cut for SS gone . SS is running out of money now and you cut the amount of money it takes in ?????? This is the thinking that got us where we are now. Here is the plan cut spending cut senate pay in half and get rid of thier 100 % retirement. Cut congress in half at one time when there were no phones or computers we needed all the congress men now not so much. And raise the import tax on countries that do not have the same standards our companies have .

February 13 2012 at 9:10 AM Report abuse +2 rate up rate down Reply
Harry Piels

When congress lives under the same laws, benefits, and programs as the rest of us, change will come!

February 06 2012 at 9:11 PM Report abuse +2 rate up rate down Reply
Harry Piels

They should end deductions for those who have more than two kids. Sounds cruel, but think. The only people who can afford more than two kids are the rich and the very poor (who get more in welfare payments). Most people with middle class incomes can only afford more than two on the backs of us taxpayers, through those generous deductions...ouch!

February 06 2012 at 9:07 PM Report abuse +2 rate up rate down Reply

Flat tax. The only fair way to pay. NO DEDUCTIONS FOR ANYONE.

February 05 2012 at 11:20 PM Report abuse +2 rate up rate down Reply

Obama is determined to raise taxes on all of us that still pay them 47% do not. The raises will hitthose who make between 50,000 and 100,00 the hardest. Also retirees who rely on investments they saved all their lived for will see big raises. Look out it is coming.

January 24 2012 at 9:07 PM Report abuse +5 rate up rate down Reply


January 24 2012 at 8:32 PM Report abuse +6 rate up rate down Reply


January 24 2012 at 7:39 PM Report abuse +1 rate up rate down Reply
1 reply to ATLANTIS QUEEN's comment

If the rich get hit with higher taxes, how does that help you? All that Obama is going to do with that money is pay it out to contributors like Solyndra. None of it will be used to pay down the debt which, by the way, hurts the poor and the middle class. Keep running up the debt and keep printing money and soon your money won't be worth much. If gasoline goes to $5/gal and bread goes to $4/ loaf, who does that hurt the most? Certainly not the rich.

February 18 2012 at 4:11 AM Report abuse -1 rate up rate down Reply
1 reply to grampz05's comment

We have to pay for Bush's Medicare part D, 2 wars that were off the books until 2010 and 2 huge Bush tax cuts that were suppose to create jobs and didn't. Time to pay the piper. You folks are like those who vote against state/local taxes then gripe when your car needs repairs because you hit too many pot holes on main street.

March 24 2012 at 11:27 AM Report abuse +2 rate up rate down

Got news for ya, if the price of anything goes up anymore, or they try to raise taxes, I will not pay them! An if they try to come after me for not paying, .......I'm moving the hell out of this BLOOD ******* country!! I've had it with the FEDS, STATE GOV'T, AND LOCAL GOV'T, taking every dime I get, I am also tired of paying MORE for "downsized products" of ANYKIND!! Canada or Mexico is looking pretty dam good right now!!

January 24 2012 at 7:13 PM Report abuse rate up rate down Reply

Why not Cut the size of government. Maybe we should all go on strike!!! Maybe we should all just spend less, earn less then less will be paid to the government.

January 24 2012 at 7:06 PM Report abuse +3 rate up rate down Reply
1 reply to jmtlfix's comment

what drug are you on send me some:-) The goverment spend less and the goverment will earn less does,does not help that why we have the deficiet we have.

January 24 2012 at 7:26 PM Report abuse -2 rate up rate down Reply