First, a Happy New Year to my readers. 2012 is behind us and so is the talk of the fiscal cliff. Our elected officials knew we had a problem months ago, but like children with a book report due to their teacher, this issue was literally left for the 12th hour to solve. Perhaps even worse than 12th hour, it was resolved on New Year’s Day. Crazy.
That said, let’s take a high level look at how the deal made Tuesday night will impact you:
- The Payroll Tax (aka FICA) for the employee Social Security withholding was allowed to increase back to 6.2% from the reduced 4.2% we enjoyed these past two years. I dare say for most people, this may be the largest impact, especially those with an income level putting their federal taxes at zero. A 47.6% increase to their withholding.
- The rates you’ve come to know and love, 10,15,25,28,35% are all still in place, with a new rate for those who make over $400K (single) or $450K (married) 39.6%. This income threshold is above the original $250K Obama was requesting, and happens to be just over the income required to be a top 1%er.
- The 15% rate for dividends and long term capital gains will continue for all but earners above $200K/$250K (Single/Joint) who will have a 20% rate.
- The AMT (Alternative minimum tax) which needed to be addressed every year, will have an exemption of $50,600/$78,750 for 2012, and $51,900/$80,750 for 2013. It was agreed these numbers will be automatically adjusted each year for inflation.
- The ability to choose between a deduction for your state income tax or state sales tax has been made permanent.
- The child tax credit, scheduled to go down to $500, is now
a permanentextended for five more years at $1000.
- The IRA charitable donation has been extended though the end of 2013. Too bad, they should have made it permanent.
- The estate tax (aka The Death Tax) has been extended based on the 2012 exemption of $5.12M per person with an inflation adjusted number for 2013 expected soon. Above this amount, and a rate of up to 40% will apply.
The details of H.R. 8, the American Taxpayer Relief Act (ATRA) of 2012, runs a full 157 pages. Over the next few weeks, I’ll expand a bit of some of the provisions worth understanding a bit better. For now, these are the highlights.