How the Fiscal Cliff Could Affect Your 2013 Travel Budget

The fiscal cliff may seem like a sudden, devastating event but it didn’t just appear out of nowhere. We’ve been heading toward this crevasse for years and haven’t done much to bridge the gap it creates between the 2012 tax landscape and the much bleaker one we face in 2013.


The fiscal cliff marks the end of the Bush tax cut extension (signed by President Obama in 2010) as well as the start of new federal budget measures and the introduction of the Patient Protection and Affordable Care Act tax. These changes could, if nothing is done by congress before the end of the year, have a big impact on the wallet of every American, which is something you should consider if you’re planning on taking an international vacation in 2013.


Who’ll Be Affected


Individuals who make $200,000 per year or couples filing jointly who make $250,000 or more are in for a shock as their income tax rates are set to rise in 2013. But that doesn’t leave everyone else in the clear; no matter what you earn, the end of the 2 percent payroll tax relief will put a cramp in your international travel budget.


In 2010 President Obama signed the Temporary Payroll Tax Cut, reducing the amount that individuals were required to pay toward Social Security in their payroll taxes. Set to expire in 2011, it was extended to continue the reduction in Social Security withholding through 2012. Now, as we near the fiscal cliff, it’s set to expire leaving everyone’s payroll check at least 2 percent lower.


As you will see below, some individuals will feel the impact of the cliff even more than others, as certain special taxes come into play.


Additional Tax Consequences

  • Capital gains: Were you planning on liquidating an asset in order to pay for a trip? Well you might want to liquidate a little more than you originally planned. Short-term capital gains taxes are set to increase about 5 percent. Long-term capital gains rates are based on income, which may go up as well and a new 3.8 percent tax for Medicare may be tacked on to investment income, meaning that you’ll net less in gains than you originally planned.
  • Dividend income: Planning on dividend income to help pad your budget for your international vacation? Unfortunately, dividend taxes are set to rise from capital gains rates of 15 percent to as much as 43.4 percent so make sure your savings is able to make up the difference.
  • Tax refunds: Some may be counting on their tax refunds to pay for their international travel. But with the marriage penalty making a comeback, no longer will you enjoy the full, two-person standard deduction that might have afforded you a bigger refund. Instead, married couples filing jointly will pay more in taxes than two unmarried individuals filing separately.
  • Estate taxes: If you’re planning on celebrating your retirement with a long, world-wide trip, you may want to rethink that if you still want to leave a substantial legacy to your heirs. The estate tax exemption is set to drop from $5.12 million in 2012 to $1 million in 2013. Anything you spend now on travel will reduce your legacy, which is already being cut short by the reduced exemption.
  • The alternative minimum tax: Millions of taxpayers who’ve never even heard of this tax much less paid it, will be expected to do so after the cliff.  According to The Washington Post, 26 million households will face an average AMT of $3,700 in 2013. Originally intended to stop deduction abuse, the AMT places a limit on the deductions that a taxpayer can take by excluding such things as charitable donations and housing interest.

The fiscal cliff doesn’t have to stop your international travel plans, but it may force you to adjust them to some extent. One way that you can reduce the impact of these tax changes is to invest in international travel health insurance. An international travel heath insurance policy fits nicely into any budget and protects you from the unexpected medical treatment bills you can easily rack up while travelling abroad. You can design your coverage to provide basic medical care, repatriation benefits, emergency transportation in remote locations, and more.


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