Fiscal Cliff Notes - The effect of Taxmageddon on the Federal Employee (part one)

There has been a lot of jibber-jabber about the effects of the federal budget sequestration ‘Fiscal Cliff‘, aka ‘Taxmageddon’, but to date I have found very little detailed anaylysis regarding its effect on the Federal Employee. So here goes…

I’m disappointed that NARFE or one of the government employee unions has yet to present a comprehensive, detailed breakdown of how all the proposed laws/orders will directly affect the Federal Employee’s wallet. In their defense, there is a mishmash of laws, proposed bills, and executive orders to sift through. If you’re a Govvie, give thanks that you’re not a defense contractor waiting for a layoff notice that may or may not come due to the muddied interpretations of the WARN act.

Sorry, Back to the topic. I’m not an attorney or CPA, but in the interest of my own wallet, here’s how I see the proposals affecting a mid-career Federal Employee in 2013. Note that most of these proposals hit Mr. and Mrs. Joe and Jane Sixpack in the private sector as well:

Law/Bill/Order	2012 Status	2013 Status	Effect
Expiration of Bush Tax Cuts – Marginal Rate	25% (MFJ)	27% (MFJ)	Increased Marginal Rate of 2%
Expiration of Bush Tax Cuts – LT Capital Gains	LT Capital Gains - 15%	20.00%	Increase on LTCG of 5%
Expiration of Bush Tax Cuts – Dividends	15.00%	20.00%	Increase on Dividends of 5%
Expiration of Payroll Tax Holiday	4.2% of wages under $110K	6.2% of wages under $110K	Increase of 2% on first $110K of wages
Federal Pay Freeze	No Change	No Change	No Change
Increase FERS Annuity Witholding	0.00%	0.40%	Increased withholding of 0.4% of wages
Non-sequestration effects:
FEHB Increase of 3.7%	Status quo	Avg. Premium increase of 3.7%	Increased FEHB premium by 3.7%
ObamaCare 50% cut to Medical FSA	FSA Limit of $5,000	FSA Limit of $2,500	An additional $2500 in wages potentially taxed.