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Name:
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MartiniMan
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Subject:
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Summary of the tax bill passed by Congress
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Date:
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1/3/2013 8:16:59 AM
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and autosigned by TOTUS since he was too eager to spend another $7 million of our tax dollars to head back to Hawaii. Read this and you will now know more than those that voted for it. Source was Merrill Lynch/BofA.
Here are the key elements of "fiscal cliff" bill. Now Democrats have their revenue increases. We shall soon find out whether their 3:1 cuts will happen. I have my doubts but you never know.
Individual tax rates: The deal extends permanently the existing tax rate structure for incomes up to $450,000 (joint filers)/$400,000 (single). Income above those thresholds is subject to a 39.6% rate, beginning 2013. This increases the rate from the maximum 2012 level of 35%.
Investment Income: Taxpayers with Modified Adjusted Gross Income in excess of $250,000 (joint filers)/$200,000 (single) that have investment income from short-term capital gains, taxable interest, rent and royalty income are subject to the 3.8% Medicare surtax on investment income set to take effect in 2013. This is added to the maximum income tax rate of 39.6% will create a maximum tax rate of 43.4%.
Capital gains/dividends: The 15% rate on capital gains and qualified dividend income will remain for taxpayers with incomes under $450,000 (joint filers)/$400,000 (single), beginning 2013. For the taxpayers above the $450,000 (joint filers)/$400,000 (single) the rate will be 20%. The agreement leaves in place the 3.8% Medicare surtax on investment income set to take effect in 2013. This affects taxpayers with Modified Adjusted Gross Income in excess of $250,000 (joint filers)/$200,000 (single). The Medicare surtax added to the maximum tax on capital gains & dividends makes the maximum rate 23.8%.
Limits on itemized deductions/personal exemptions: The so-called “Pease” limitations – enacted in 1990 and repealed in 2001 – are reinstated, beginning 2013, for taxpayers with incomes above $300,000 (joint filers)/$250,000 (single). The rule generally operates to reduce itemized deductions by up to 2% for every $2,500 (joint filers)/$1,250 (single) of taxable income in excess of those thresholds. (The agreement does not include the President’s proposal to limit the value of itemized deductions to 28%.) In addition, the bill reinstates rules phasing out personal exemptions for taxpayers with incomes above $300,000 (joint filers)/$250,000 (single).
AMT: The individual alternative minimum tax “patch” is reinstated for 2012 and made permanent by the Act. This raises the projected AMT income exemption level in 2013 to $80,750 for joint filers and $51,900 for single filers. It also, adjusts the AMT income level for inflation moving forward.
Tax “extenders”: The Act extends through 2013 the rule providing that individuals will not be taxed on forgiven mortgage debt. The deal also reinstates for 2012 and extends through 2013 a number of tax provisions that expired at the end of 2011 – these include the “AFE” rule that defers U.S. tax on certain income earned by foreign financial subsidiaries; the CFC “lookthrough” rule; the New Markets Tax Credit; the provision increasing the amount of employer-provided mass transit benefits that may be provided tax-free; and the IRA charitable rollover rule allowing individuals to make charitable contributions from IRAs without paying tax. The tax credit for production of wind energy also is extended for one year, available for projects where construction has commenced by December 31, 2013. The deal also extends 50% bonus depreciation through 2013.
Estate tax: The Act makes permanent a 40% top estate tax rate (up from the current 35% top rate) and a $5.12 million exemption amount (annually indexed for inflation), beginning 2013. It also, makes permanent the portability provision in place since 2011. Portability allows married couples to carry on the $5.12 exemption amount from the first spouse’s estate and therefore exempt $10.24 million from estate tax.
Gift tax: The Act provides a 40% gift tax rate and a lifetime exclusion of $5.12 million adjusted for inflation. The annual exclusion remains the same and is projected to be $14,000 for 2013 because of inflation adjustments.
2009 tax cuts: The bill extends for five years a number of individual tax cuts enacted as part of 2009 stimulus legislation, including the American Opportunity Tax Credit and expansions of the child tax credit and the Earned Income Tax Credit.
"Doc fix”: The current Medicare reimbursement rates for physicians are extended through 2013.
Unemployment benefits: The federal emergency unemployment benefits program is extended through 2013.
Sequestration: The agreement delays the onset of sequestration spending cuts for 2 months (i.e., through February 2013). It includes $24 billion in new offsets to substitute for the deficit-reduction that sequestration would have provided over that period. These include a provision allowing individuals to convert a traditional 401(k) to a Roth 401(k).
The deal does not address the federal debt ceiling, which likely will need to be increased by late February or early March. In addition the employee payroll tax rate will climb back to the 6.2% level from the 4.2% level for all taxpayers will “earned” income. The lower rate was in effect for 2011 and 2012 and was not part of the deal that Congress created for 2013.
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