(RNN) - Although some of the fiscal cliff debate has focused on reducing the national debt through spending cuts, most Americans are concerned with how jumping off the cliff will affect their paycheck.
And rightfully so.
Virtually every American stands to lose money if Republicans and Democrats fail to reach an agreement by the end of the year. And although some tax increases will be noticeable when employers issue their first paychecks in 2013, others won't go into effect until Americans go to file their taxes in spring 2014.
But regardless of if the country jumps off the fiscal cliff, any agreement made by lawmakers will undoubtedly end with a changed tax code.
Republicans and Democrats have different visions for how the country should avert the fiscal cliff and reduce the national debt.
GOP lawmakers believe they can solve the country's fiscal issues by passing $800 billion in unspecified tax reform, $600 billion in unspecified healthcare program savings, raising the age of Medicare eligibility to 67 and abolishing Social Security cost of living adjustments. They also hope to keep federal income tax rates at the same levels they were under the Bush-era tax cuts.
Meanwhile, Dems hope to pass a plan that combines the GOP's goal of spending reductions with the collection of new revenue. Under President Barack Obama's original fiscal cliff plan, the government would raise $1.6 trillion in tax revenue by reverting back to the Clinton-era rates of 35 and 39.6 percent for the country's top 2 percent of income earners.
If lawmakers fail to reach a compromise between their plans by the end of the year, major tax cuts that have been accumulating for the past decade will expire all at once.
Among the immediate changes to the tax code would be the expiration of the Middle Class Tax Relief and Job Creation Act of 2012.
The act extended a Social Security payroll tax cut currently withheld from all paychecks and kept the tax rate at 4.2 percent. The rate would increase to 6.2 percent in 2013 if it expires in the fiscal cliff, withholding more money from each paycheck.
The Economic Growth Tax Relief Reconciliation Act of 2001 is another piece of legislation that would expire in the cliff. Introduced in 2011, the act created a new lower income tax bracket that taxes the country's lowest earners a total of 10 percent. Low income earners were previously required to pay at least 15 percent in income tax.
The act also lowered other income tax brackets by 3 percent.
If the law expires, 10 percent tax bracket for the nation's lowest earners could be eliminated and the other brackets would revert to their original value.
In addition to the income tax brackets, jumping off the fiscal cliff would also broaden the base of earners who must pay a base tax commonly known as the Alternative Minimum Tax (AMT).
Originally implemented in 1969 to make sure upper-income Americans pay a fair amount of taxes, the AMT was never adjusted for inflation. As a result, more people began paying the tax as each year passed, including many middle-income Americans.
In 2011, AMT was imposed on individuals with incomes as low as $48,450. Joint filers with combined incomes as low as $74,450 were also charged an AMT. This year, the AMT could affect individuals making as little $33,750 and joint filers with a combined income of $45,000 if we fall off the fiscal cliff.
Although many cuts ending with the fiscal cliff focus on earned income, the estate tax provision will also juristically change, further taxing inheritance.
The estate tax currently taxes a percentage on the inheritance of $5 million or more worth of assets, with a tax rate as high as 35 percent depending on total worth. Estates below that value are exempt.
If Congress fails to resolve the fiscal cliff, only an inheritance below $1 million would be exempt and the highest estate tax rate would rise to 55 percent. Larger estates could also be subject to a 5 percent surtax.
The future of the estate tax is a major negotiation point between Republicans and Democrats, as members of the GOP want to either eliminate the estate tax or keep it at its current rate. However, Obama wants to return it to its 2009 level, making estates below $3.5 million exempt and the maximum estate tax rate 45 percent.
Several tax deductions will also be reduced or expire, including tax credits for families with children.
Middle-class American families currently get a $1,000 income tax credit per child under 17, but that deduction will decrease to $500 without a deal.
Parents with children 18 or older and in college also have something to fear with the looming cliff, as the American Opportunity Tax Credit will expire. The credit currently gives parents a $500 credit for each child.
To top off the taxation burdens associated with the fiscal cliff, various energy credits will expire, smaller-scale deductions will be given for mortgage insurance premiums and the increased standard deduction for married taxpayers filing jointly will be eliminated.
Lawmakers from both parties continue to meet this week in hopes of striking a deal before the Jan. 1 deadline. However, no timetable for a final agreement has been offered.
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