Fiscal Cliff Legislation: How Tax Changes in the Act May Affect You

As the New Year's ball worked its way down its 141-foot drop in the seconds leading up to midnight on December 31, many people wondered if they were seeing the image of the United States dropping over the Fiscal Cliff.

But after a hectic 48 hours that ended at about 11 p.m. on New Year's Day, Congress pulled the country back from the proverbial cliff by passing H.R 8, ironically titled the American Taxpayer Relief Act of 2012. President Obama quickly signed the bill on January 2, 2013.

In a feat that would have made Harry Houdini proud, Congress even managed to pass what amounts to a $600 billion dollar tax increase and have it tallied as a $3.9 trillion tax cut. By waiting until after Dec. 31 to pass the bill, Congress allowed the tax increase resulting from the expiration of the 2001 and 2003 tax cuts to technically take effect. So, in the way Washington keeps score, the members of Congress can tell their constituents, "I voted a tax cut for you."

The new law does not resolve fundamental deficit issues. It only delays for two months the automatic across-the-board "sequestration" spending cuts. And while much may be made of the "permanent" nature of the new tax changes, keep in mind that in Washington a law is permanent only until Congress changes it.

Read more about some of the highlights of this new law through our supplemental letter which provides a brief summary of the American Taxpayer Relief Act.