by: Jodie Fleischer Updated:
Agonizingly close to a New Year's Eve compromise, the White House and congressional Republicans agreed Monday to block across-the-board tax increases set for midnight, but held up a final deal as they haggled away the final hours of 2012 in a dispute over spending cuts.
While the deadline to prevent tax increases and spending cuts was technically midnight, passage of legislation by the time a new Congress takes office at noon on Jan. 3, 2013 — the likely timetable — would eliminate or minimize any inconvenience for taxpayers.
For now, more than the embarrassment of a gridlocked Congress working through New Year's Eve in the Capitol was at stake.
Economists in and out of government have warned that a combination of tax hikes and spending cuts could trigger a new recession, and the White House and Congress have spent the seven weeks since the Nov. 6 elections struggling for a compromise to protect the economy.
But in Georgia, tax specialists said we will all feel the pinch of new tax policies, whether members of Congress pass the tentative agreement or not. The most immediate will be the end of the payroll tax holiday, meaning you will pay more into Social Security and take home 2 percent less.
"The tax on payroll is going back to what it used to be, and that's your first paycheck in 2013, you will feel that right away," said Merry Brodie, of Brodie Accounting Services in Atlanta.
She said one of the biggest impacts if the new agreement passes, may be the 30 million middle and upper-middle income taxpayers who will be saved from paying the alternative minimum tax of 26 percent.
But tax specialist Bill Nemeth said you shouldn't start celebrating just yet, "It's a speed bump now, the cliff is 2013 as all of the cuts begin to happen."
"I believe every taxpayer will have their ‘aha’ moment at some point between now and next year," said Brodie, "They are going to find that deductions they were used to getting are no longer there."
Thousands of Georgians forced to pay mortgage insurance, or PMI, on their homes, will no longer be able to deduct it.
Teachers won't be able to claim the $250 deduction for out-of-pocket expenses for classroom supplies.
Students will no longer get to deduct up to $4,000 in tuition and fees.
The sales tax deduction also goes away, though Georgians can still claim state income taxes instead.
Brodie said because Congress took so long to act, you may want to consider waiting to file your tax return until later in the season. The Internal Revenue Service still has to fix its software to update all of the changes. That will create delays for every tax preparer and online service.
"They're going to be confused. The software won't be correct, and if they try to file early to get a refund, there's a chance they'll have to amend their return, and come back to the table and pay some of it back," said Brodie.
But there is a bright spot for some Georgians. Starting this year, anyone 65 or over will get to deduct $65,000 of retirement income, whether they're retired or not.
Brodie and Nemeth both said taxpayers should consider consulting an expert or at least reading up on all of the changes once they're finalized, to avoid costly mistakes on their returns.