The Fiscal Cliff has been approved and it is set to start from January 1st 2013 and you should soon see a 2 percent increase in the tax deduction from your paychecks. The corresponding bill was passed this Tuesday by the House and the Senate and is sent to the President Barack Obama for his signature, which has been approved by Mr. President this Wednesday.

What is Fiscal Cliff:

Fiscal cliff is the popular shorthand term used to describe the conundrum that the U.S. government will face at the end of 2012, when the terms of the Budget Control Act of 2011 are scheduled to go into effect, as per Thomas Kenny from about.com.

Fiscal Cliff is aimed to avert Bush Tax Cuts, which was set to expire the December 31st 2012. The bill passed on this Tuesday will thereby end last year’s temporary tax cuts and henceforth increase tax deductions by 2% from your paycheck.

Taxes while on H-1B:

An H-1B visa holder will have to pay the following taxes while holding an employment in the United States:

• Federal Tax
• State Tax (To the applicable states)
• Social Security Tax
• Medicare Tax

An H-1B visa holder need to be employed during his whole H-1B period and thus he/she should pay taxes for the entire time the candidate work on H-1B.

State Tax Exempted:

There are a few states where the state taxes are exempted. You do not need to pay state tax, if you are residing in that state and holding a job there. If you reside among the following states, you do not need to pay any state tax:

• Alaska
• Florida
• Nevada
• South Dakota
• Texas
• Washington
• Wyoming
• Tennessee and New Hampshire states tax only dividend and interest income.

Summing up all the taxes, an average H-1B holder pays around 30% in taxes from his/her salary. You will need to pay an additional 2% in taxes due to the Fiscal Cliff from 2013.

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