Originally Published 2013-02-10
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012. This act increases the federal tax rates on higher income taxpayers, preserves the unification of the federal gift and estate tax, extends unemployment benefits, and addresses a wide range of other tax and spending measures.
Some of the provisions of this Act are:
1. Estate and Gift Tax-The Act permanently unifies the federal gift and estate tax rates. The top federal rate has been increased to 40% and the exemption level remains at $5,000,000 or $10,000,000 for couples, indexing annually for inflation since 2011 resulting in a $5.25 million exemption for gifts made in 2013 and estates of decedents passing in 2013.
2. Alternative Minimum Tax-The Act provides permanent changes to the AMT, and provides that the exemption amount used in its calculation will be adjusted in future years for inflation. The Act retroactively increases the exemption for 2012 as follows: - $50,600 for unmarried filers (up to $33,750) - $78,780 for joint filers (up from $45,00) - $39,375 for married persons filing separately (up from $22,500) These amounts are indexed for inflation beginning after 2012.
3. Income Tax Rates-A new top income tax rate of 39.6% will be introduced, and will apply for: - Joint filers and surviving spouses earning $450,000 and above - Heads of Household earning $425,000 and above - Single filers earning $400,000 and above - Married taxpayers filing separately earning $225,000 and above These dollar amounts are indexed for inflation adjusted for tax years after 2013. Additionally, the Affordable Care Act instituted a new 0.9% Medicare surtax on wages in excess of $200,000 for individuals and $250,000 for couples. Income tax rates stay the same for those in the 10%, 15%, 25%, 28% 33% and 35% tax brackets.
4. Phaseout of Exemptions and Itemized Deductions-The personal exemption phaseout and those who will experience a phasing down of their itemized deductions are as follows: - Joint filers and surviving spouses earning $300,000 and above - Head of Households earning $275,000 and above - Single filers earning $250,000 and above - Married taxpayers filing separately earning $150,000 and above These dollar amounts are inflation adjusted for tax years after 2013. Exemptions will be reduced by 2% for each $2,500 by which the taxpayers AGI exceeds these thresholds and itemized deductions are reduced by 3% of the amount by which the taxpayers AGI exceeds the threshold, with the reduction not exceeding 80% of the otherwise allowable Itemized deductions.
5. Capital Gains and Dividend Rates-Capital gains and dividend tax rates will be determined by the rate that coincides with the rate of tax taxpayers are paying on their ordinary income. - Taxpayers whose ordinary income is generally taxed below 25% will not be subject to taxes on capital gains and dividends. - Taxpayers who are taxed on a 25% or greater rate on ordinary income, but whose income is below the $400,000 ($450,000 for married taxpayers) will continue to be taxed at a 15% rate. - Taxpayers whose ordinary income exceeds $400,000 ($450,000 for married taxpayers will be taxed at a 20% rate. Additionally, the Affordable Care Act instituted a 3.8% Medicare surtax that will apply on Investment income and gains for those with an AGI over $200,000 for individuals and $250,000 for joint filers.
In addition, the Act extended numerous deductions and credits that were intended to expire at the end of either 2011 or 2012. Please contact me regarding any of these that you may have questions about.
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