American Taxpayer Relief Act Summary
On January 2, 2013, President Obama signed the American Taxpayer Relief Act of 2012 (ATRA) into law. Enacted to address the tax side of the “fiscal cliff,” the ATRA primarily addresses the expiration of certain portions of the Bush-era tax cuts. Below is a summary of the major tax provisions in the ATRA.
- Individual Tax Rates. Beginning in 2013, the individual marginal income tax rate increases to 39.6% (up from 35%) for single filers with income above $400,000 ($450,000 for joint filers). The lower Bush-era income tax rates will remain in place for single filers with income below $400,000 ($450,000 for joint filers).
- Dividends & Capital Gains. Beginning in 2013, the top tax rate for dividends and capital gains increases to 20% (up from 15%) for single filers with income above $400,000 ($450,000 for joint filers). Other taxpayers will pay a maximum capital gain and dividend tax rate of 15%, except that a 0% tax rate will continue to apply to capital gains and dividends to the extent that a taxpayer’s income is below the top of the 15% income tax bracket.
- Estate & Gift Tax. Beginning in 2013, the maximum estate, GST, and gift tax rate increases to 40% (up from 35%), and the unified gift and estate tax credit remains at $5 million (indexed for inflation).
- Personal Exemption Phase Out. Beginning in 2013, the personal exemption is phased out for single filers with income above $250,000 ($300,000 for joint filers). The total amount of personal exemptions that can be claimed by a taxpayer is reduced by 2% for each $2,500 by which the taxpayer’s AGI exceeds the applicable phase out threshold.
- Itemized Deduction Phase Out. Beginning in 2013, itemized deductions are phased out for single filers with income above $250,000 ($300,000 for joint filers). The total amount of itemized deductions that can be claimed by a taxpayer is reduced by 3% of the amount by which the taxpayer’s AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions.
- Expiration of Social Security Payroll Tax Holiday. The 2% reduction in the employee portion of the Social Security Payroll Tax (OASDI) expires as of December 31, 2012.
- Alternative Minimum Tax (AMT) Patch. The ATRA permanently “patches” the AMT for 2012 and subsequent years by increasing the exemption amounts.
- Extension of Individual Tax Breaks. The ATRA extends numerous tax credits, including the child tax credit, earned income credit, and college tuition credit.
The ATRA also extends many business tax breaks, including Code Section 179 small business expensing, bonus depreciation, and the Work Opportunity Tax Credit.