“Fiscal Cliff” law increases taxes

The American Taxpayer Relief Act of 2012., also known as the Fiscal Cliff law has many tax changes. Highlights of the bill include:

Permanent Alternative Minimum Tax (AMT) patch, adjusted for inflation. This will protect 30 million taxpayers from AMT liability.

Preservation of the Bush-era tax cuts for individuals earning less than $400,000 (AGI) and families earning less than $450,000. Tax rates will increase from 36% to 36.5% for taxpayers above those income thresholds.

Preservation of the $5 million individual ($10 million per couple) exemption for estate taxes. Estate value above that threshold will be taxed at 40% rate, up from the current 35%. Portability is also maintained. That means if one spouse dies not using all of the $5 million exemption, the surviving spouse can take advantage of the difference.

Increase in the dividends and capital gains tax rate from 15% to 20% for individual taxpayers earning above $400,000 (AGI) and families earning above $450,000.

An end to the payroll tax holiday. The social security withholding rate is reset to its previous 6.2% rate on the first $113,700 in earnings for each individual taxpayer. This means an immediate tax increase for all working people. This increased tax will be reflected in paychecks immediately.

Extension of the $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity College tuition tax credit.

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