The American Taxpayer Relief Act of 2012

Early this year, congress passed the American Taxpayer Relief Act of 2012. Here’s a quick breakdown of the contents of the bill, and how it could affect you this tax season:

  • The temporary Social Security payroll tax reduction that was in effect for tax years 2011 and 2012 has expired. For paychecks dated in 2013, the employee Social Security rate returns to 6.2%
  • Raises the top tax rate to 39.6% for married couples earning $450,000; single taxpayers earning $400,000
  • Raises long-term capital gains and qualifying dividends tax rate to 20% (from 15%) for taxpayers in the 39.6% tax bracket
  • Permanently extends Bush-era tax cuts from 2001 and 2003 for all other taxpayers
  • Reinstates phaseout of personal exemptions and overall limitation on itemized deductions for married couples filing jointly earning over $300,000 and single taxpayers earning over $250,000
  • Extends for 5 years (through 2018) the American Opportunity Tax Credit to pay for higher education, and special relief for families with 3 or more children for the refundable portion of the child tax credit and increased percentage for the earned income tax credit
  • Patches the AMT for 2012 and adjusts the exemption amount for inflation going forward
  • Extends through 2013 the following individual tax benefits:
    1. Above the line deduction for teacher expenses
    2. Relief from cancellation of debt income for principal residences
    3. Parity for employer-provided mass transit benefits
    4. Deduction for mortgage insurance premiums as interest
    5. Election to deduct state and local sales taxes in lieu of income taxes
    6. Above the line deduction for qualified education expenses
    7. Tax-free distributions from IRA accounts for charitable purposes
  • Extends through 2013 certain energy tax incentives that expired at the end of 2011 including:
    1. Energy efficient credit for existing homes
    2. Alternative fuel vehicle refueling property credit
    3. Biodiesel and renewable diesel incentives
    4. Wind credit
    5. Energy efficient credit for new homes
    6. Credit for manufacture of energy efficient appliances

    Check back soon for more information on the act!

    In accordance with IRS Circular 230, this newsletter is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

    On January 7, 2013, posted in: Tax & Accounting Tips by