If a deal isn't struck soon, the country could topple head first over the fiscal cliff. While a majority of taxpayers and experts are optimistic about Republicans and Democrats working out a solution, some worry that as of Jan. 1, Americans will be in financial ruin.
And the impact won't be limited to the wealthy. Working families and parents with children are among those who will be impacted if lawmakers fail to reach an agreement, or under some of the proposed tax changes that both parties are seeking.
One initial change will be the individual income tax rates. Today, there are six brackets of rates which could shrink to five. The 10-percent tax bracket will be eliminated with the next-lowest bracket being 15 percent.
For the $30,000 annual salary and under, there's not a huge impact as far as tax rate, said David Liechti, an accountant with Liechti, Franken & Young. "They would stay in the 15 percent tax bracket. But the 10-percent tax bracket would go away so they might lose some money."
Mr. Liechti said that before the Bush tax cuts there were fewer tax rates. The rates got expanded and that meant there were lower rates available.
"Those middle ones that helped in that middle are gone," he said of the potential changes.
There are nine tax laws to be aware of that are effective through Dec. 31. Payroll tax, individual income tax, capital gains and qualifying dividends tax, marriage tax, exemptions, itemized deductions, child tax credit and child and dependent care.
If there is no agreement, the Bush-era tax cuts will expire and impact many families. Some will be almost immediate, like the payroll tax. The payroll tax rate is currently at a rate of 4.2 percent and could increase to 6.2 percent.
"The first paycheck in January you'll get less money in your paycheck," Mr. Liechti said.
Employers will withhold more money for Federal Insurance Contributions Act (FICA).
The child tax credit will drop from $1,000 for each qualifying dependent child to $500; and the child and dependent care tax will cover up to $4,800 for two or more children, a significant drop from the previous $6,000 allowed.
"A lot of this stuff will not affect their current tax return that's going to be prepared (in 2013 for 2012)," said Dr. Rebecca Travnichek, family financial education specialist with the University of Missouri Extension office. "It'll be next year."
But will we have less money to spend next year, she asked. "Yes."
Dr. Travnichek believes the fiscal cliff can be minimized as long as families have the basics under control and they are using their spending plan, not using debt, and have an emergency fund.
"Every family should have an emergency plan in place to weather any storm," she said. "As a financial counselor, I would rather be cautious and concerned than gung-ho and move ahead."
Fiscal cliff talks can be confusing when it comes to who is getting tax breaks, who is going to be paying more and who will be affected the most. If an agreement isn't reached, the truth is, we all will be impacted.
"It's a big assumption that it doesn't get extended," Mr. Liechti said. "Nobody wants (tax rates) to go up on the single mother. I'm optimistic that some of this won't happen and hopefully it's all worst-case scenario."