Well color me surprised!
After reading everything that was coming out of Washington, DC about the fiscal cliff negotiations yesterday, I had very little faith that the House would pass the bill. But, to quote my Mom, bless their pointy little heads, pass it they did. Okay, so what did we get?
First and my favorite is the Alternative Minimum Tax fix. Not patch but fix. AMT isn’t going away but the exemption level will continue at the higher levels of the last few years and will be indexed for inflation.
Higher income taxpayers will be paying more in taxes. First, the highest tax rates will be going to 39.5% for taxpayers with $400,000 ($450,000 for married filing jointly) or more in taxable income. This is up from a 35% top rate. These taxpayers will also be paying higher tax rate on capital gains and qualified dividends. They will pay 20% as compared to 15% for everyone else. Finally, the phase outs for the itemized deduction and personal exemptions are back. Taxpayers with income more than $300,000 and $250,000, respectively, will start losing those deductions.
Lower and middle income taxpayers will still have the Earned Income Credit, Child Tax Credit and American Opportunity Tax Credit. These remain at the same level as 2011 but the extension is only for 5 years.
Some deductions which expired 12/31/2011 have been extended through 12/31/2013. These include the $250 deduction for teacher classroom supplies, the Higher Education Tuition and Fees deduction, the mortgage insurance premium deductibility and the charitable contribution from an IRA.
The Estate Tax is now set at 40% for estates over $5 million and it’s indexed for inflation.
There are a bunch of business credits and deductions which get another year. More about those in another post.
Besides the tax provisions, there were several other provisions included in ATRA. First is the extension of unemployment benefits for another year. The cuts in Medicare reimbursement for doctors are also delayed for a year. The farm bill fix is only for 9 months to avert the “milk cliff.” Finally, Congress will not get their 0.5% cost of living increase like other Federal employees. It’s been re-frozen.
What didn’t get into ATRA? The 2% cut in employee’s FICA contributions is gone for 2013. It’s back to 6.2%. Congress also didn’t deal with spending cuts or the debt ceiling and sequestration is delayed for 2 months.
That’s ATRA in a nutshell. As we put it into practice, I’m sure we’ll be hearing, and writing, more about it. But at least tax season can proceed even if some returns will have to be delayed while the IRS re-tools their systems for the last minute changes.