Q: When is a 20% pay cut really a 24% pay cut? When is it a 30% pay cut?

I received an email today from some Defense bean-counting types with an xls spreadsheet that calculates your federal employee take-home pay under administrative furloughs (sequestration).

I was a bit hesitant to ‘leak the memo’ here, but Commander, Fleet Activities Yokosuka (CFAY) has already beaten me to the punch (h/t to Stars and Stripes). Continue reading


 

 

Two riders in The American Taxpayer Relief Act of 2012 (the Fiscal Cliff Deal) apply directly to Federal Employee Benefits.  They are:

1) Increasing the Transportation Incentive Program (TIP), a program to incentivize federal employees to use mass transport or vanpools, to a monthly stipend of $240.  The language in the bill restores parity between commuter expenses for parking (currently $240/month) vs. mass transport (was $125).  They are now both set at $240, retroactive to 01 January 2013.

2) Ability to convert money in your employer-sponsored 401k account to the employer-sponsored Roth 401k account (if offered by the employer).

Just like the creation of the Roth TSP, It will probably take the TSP 12-18 months to catch up with this provision, but my prediction is that it will happen.  This provision in the Fiscal Cliff Deal was put there as revenue grab to get income taxes now (immediately upon 401k conversion to Roth 401k)  vs in the future (eventual withdrawals from 401k).  My take on the conversion is that it is probably a bad idea to convert a Traditional IRA/401k to a Roth IRA/401k right now unless you are absolutely certain you will be in a higher marginal bracket when you retire.

As an aside, “The American Taxpayer Relief Act of 2012”?  If my recollection is correct, this was created and passed by both houses of congress on January 02, 2013…


I’ve updated the recent analysis about Fiscal Cliff (aka Sequestration) impact on your wallet, now that we have a ‘Fiscal Cliff Deal’ struck on 02 January 2013.

There’s also a good synopsis of the ‘Deal’ done by Fidelity Investments.

Graphic click will take you to the updated GubMints ‘Fiscal Deal’ analysis post:

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*** Updated 1/2/2013 with the ‘Fiscal Cliff Deal‘, updates in italics ***

Fiscal Cliff Deal Notes (Part Two) –

As promised, I’ve run the numbers on what the Fiscal Cliff (aka Sequestration, aka Taxmageddon) will cost Joe and Jane Sixpack.

There’s no chance of a deal being worked out by the lame duck Congress.  Both sides are too far apart and there are too few work days left in the year.  If you disagree with me, then I’ve got some arid mountain land to sell you in Florida.  (Update 1/2/2013, I was right about the Year, but wrong about the lame duck congress not making a deal before the new congress being sworn in).

So it’s time to brace for impact.  Crunching the numbers as promised, here are the assumptions:

  • Mid-grade Federal Employee, married w/2 kids, living on the West Coast or an expensive area like Washington DC (this covers over half of active Federal Employees).
  • Itemized deductions of $31,000 (reasonable assumption for areas with expensive mortgages).
  • 4 exemptions claimed
  • Annual Long Term Capital Gains of $8000.
  • Annual Qualified Dividends of $2600.
  • Health Care Flex Spending Account election of $5,000 in 2012 (capped at $2,500 in 2013).

Here are the calculations:

Holy Schnikes!  Looks like I’ll be paying Uncle Sam another $4k $3k next year for the same amount of work.   Note that these calculations can apply to just about anyone in the current 25% marginal bracket- just knock of the anticipated 0.4 percent hike in FERS annuity contributions.  (1/1/2013 Update Notes: still plenty of uncertainty about FERS contributions, still some uncertainty with the Executive Order-ed 0.5 percent pay increase for federal employees).

Feel free to plug in your own numbers plug in the new numbers to see how the ‘Fiscal Cliff Deal’ Sequestration will affect you.  Enjoy!

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