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American Taxpayer Relief Act of 2012 Summary
Date: 1/3/2013
American Taxpayer Relief Act of 2012 Summary
In order to avert (or delay) the "Fiscal Cliff," Congress passed the American Taxpayer Relief Act of 2012. The new law extends a majority of the Bush-era tax cuts in the same form as they have existed since 2001 or 2003 when initially enacted. Major exceptions include a rise in income rates, including rates on capital gains and qualifying dividends, on higher-income individuals and a slight increase in the estate tax rate. In addition to a general extension of the tax rates, many other tax provisions were affected by this legislation. See the below summary of changes caused by the Taxpayer Relief Act of 2012.
• Individual Tax Rates
o Taxpayers with taxable income above $400,000 ($450,000 for married taxpayers) will be taxed at 39.6% (Up from 35%).
o All other taxpayers with taxable income below $400,000 will be taxed at the same marginal rates as during the Bush Era Tax Cut (0 to 33%).
• Capital Gains/ Dividends
o The top rate for capital gains and dividends increased to 20% from the Bush-era maximum rate of 15%. The 20% rate will apply to the extent that the taxpayer's income exceeds the thresholds set for the 39.6% rate.
o All other taxpayers with income below the 39.6% threshold will continue to have their capital gains and dividends taxed at 15%.
o All other taxpayers with income below the 39.6% threshold will continue to have their capital gains and dividends taxed at 15%.
• Alternative Minimum Tax
o The act also permanently "patches" the alternative minimum tax (AMT) for 2012 and subsequent years by increasing the exemption amounts with an annual inflation adjustment.
o The AMT exemption for 2013 increases to $51,900 for individuals ($80,750 for married filing jointly).
• "Pease" Limitation on itemized deductions
o It revives the limitation on itemized deductions but with slightly higher thresholds than before.
$300,000 for married filing jointly
$250,000 for unmarried taxpayers
o Certain items such as medical expenses and investment interest are excluded from the limitation.
• Personal Exemption Phase-out
o It revives the exemption phase-out rules but with slightly higher thresholds than before.
$300,000 for married filing jointly
$250,000 for unmarried taxpayers
$250,000 for unmarried taxpayers
• Federal Estate & Gift
o The act provides for a maximum estate tax of 40 percent with a $5 million exclusion (adjusted annually for inflation) for estates of decedents dying after December 31, 2012.
o It also permits "portability" between spouses.
o The act provides a 40 percent tax rate and a unified estate and gift tax exemption of $5 million, adjusted annually, for gifts made after 2012.
o The act provides a 40 percent tax rate and a unified estate and gift tax exemption of $5 million, adjusted annually, for gifts made after 2012.
• Tax Credit Extenders
o The act extends the Child Tax credit, Earned-Income credit, Child and Dependent care credit, and other child and education type tax credits.
o The Research Tax Credit and Work Opportunity Tax Credit were also extended through 2013.
• Section 179 & Bonus Depreciation
o The Section 179 dollar limitation for the 2013 tax year is $500,000 with a $2 million investment limit.
o The act also extended the 50 percent bonus depreciation through 2013.
o The act also extended the 50 percent bonus depreciation through 2013.
A reminder of other changes to the tax law that have become effective for 2013 and were left untouched by the ATRA of 2013:
• Expiration of the 2% payroll tax holiday
o The payroll tax holiday was not extended into 2013.
o The social security portion of your payroll tax will rise from 4.2% to 6.2%.
• 3.8% tax on Net Investment Income
o This new tax was enacted as part of the Healthcare Reform
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