How could the fiscal cliff affect your paycheck? - abc27 WHTM

How could the fiscal cliff affect your paycheck?

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We've all probably heard about the so-called fiscal cliff by now,  and how Congress has to make some kind of a deal to avoid a massive tax hike by Jan. 1.

While many people may find it difficult to understand, or have tired of hearing it mentioned, the fiscal cliff could very well affect us as employees and investors in the next few weeks.

"This would affect everybody at every level because it would affect you as an employee," said John DeSanto, a financial advisor with Edward Jones. "You'd see it in your taxes as an income earner, as well as your investments. And the taxes you have paid on what you have earned...your dividends, your capital gains."

You could even see an impact on your first paycheck of the year. For the last two years, the payroll tax rate was 4.2 percent.  But without a new deal, that will go back up to 6.2 percent, which means less take-home pay. Employers will adjust to the higher income tax rates that would take effect January 1. You might have to wait a couple of weeks to see that adjustment.

DeSanto said that, in addition to the investment tax increases, could lead to another recession.

"That would cause a lot of people that would be holding stocks that might want to use them for something else, it might prevent them from wanting to sell them and it could kind of stagnate the economy," he said.

The non-partisan Tax Policy Center has estimated that Americans will pay an additional $536 billion in taxes next year if there is no compromise. That works out, on average, to about $3,500 per household.

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