THE AMERICAN TAXPAYER RELIEF ACT OF 2012
With the fiscal cliff now behind us we can look forward to the future with a new set of tax laws. Many of these laws are not really new but are extensions of current tax laws that have now been made permanent. This new tax legislation is called the The American Taxpayer Relief Act of 2012. The following is a summary of the new tax law changes.
Income taxes: The legislation retains the current ordinary income tax rates, and adds a new tax rate of 39.6% for taxable income over $400,000 (single) and $450,000 (married filing jointly).
Payroll taxes: The 2% reduction in Social Security payroll tax rates expires. Withholding amounts will be adjusted accordingly, generally resulting in less take-home pay.
Capital gains taxes: The act retains the O% long term capital gain rate for those in the 10% and 15% tax brackets. Taxpayers in the 25% through 35% tax brackets will have a 15% long-term capital gain rate. Taxpayers in the 39.6% tax bracket will pay 20% on long term capital gains.
Qualified dividend tax rates: The act preserves the favorable tax treatment for qualified dividend at the following rates:
- 0% for those in the 10% and 15% tax brackets
- 15% for taxpayers in the 25% through 35% tax brackets
- 20% for taxpayers in the 39.6% tax bracket
- Non qualified dividends will continue to be taxed at the taxpayer’s ordinary income tax rate.
Alternative minimum tax: The alternative minimum tax (AMT) income levels were raised to $50,600 for single filers and $78,750 for married filing joint filers.
Child tax credit: The child tax credit remains at $1,000.
Education IRA’s: Contribution amounts will remain at $2,000, the contribution deadline remains April 15 following the applicable contribution year. Qualified expenses continue to include those related to enrollment in elementary and secondary education.
American opportunity tax credit: The Act preserves the American Opportunity tax credit through December 31, 2017, providing a tax credit up to $2,500 per student for the first four years of higher qualified higher education expenses.
Estate and gift tax exemption: The estate tax applicable exemption and lifetime gift tax exemption will remain at $5 million, adjusted for inflation the exemption should be $5,220,000 for 2013.
Estate and gift tax rates: Estate and gift tax rates increase from 35% to 40%.
Annual gifts: The annual exclusion gift amount increases to $14,000 (from 2012’s $13,000).
Medical expense deduction: For medical expenses to be deductible, the amount of the medical expenses must first exceed a 10% of AGI floor (compared to a 7.5% threshold in 2012).