Late Tuesday evening the House passed the American Taxpayer Relief Act to avert the highly publicized ‘fiscal cliff’. President Obama signed the bill into law on Wednesday January 2, 2013. Although the bipartisan solution gives the victory to neither side, for now, major tax increases for the ‘middle-class’ and spending cuts have been avoided.
Some of the major tax provisions of this bill are highlighted below:
- Current tax rates are retained for taxpayers with $400,000 ($450,000 for married filing joint) or less in taxable income. The top tax rate of 39.6% is restored for taxpayers over that threshold.
- Several temporary tax provisions were made permanent such as the marriage penalty relief, the exclusion for employer-provided educational assistance, and the enhanced rules for student loan deductions.
- Temporary tax provisions such as the deduction for expenses for teachers, the deduction of mortgage insurance premiums, and the deduction of sales tax were extended through 2013.
- Individual credits due to expire at the end of 2012 have been extended for 5 years. Some of these credits include the expansion of the Child Tax Credit and Earned Income Tax Credit. In addition, the credit for tuition and expenses for higher education was extended.
- Alternative minimum tax exemption was permanently indexed for inflation.
- Capital gains and dividend tax rate returns to 20% for taxpayers above the top income tax bracket threshold.
- Many business credits and provisions such as the increased expensing amounts under Section 179 and the 50% bonus depreciation have been extended through 2013.
- A number of the energy credits have been extended through 2013.
- The top tax rate for estate and gift tax increases from 35% to 40% as of January 1, 2013.
Note: This bill did not address the 2% social security payroll tax cut that expired December 31, 2012. Therefore, starting with the first paycheck in 2013, everyone will be taking home less money.
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