“Fiscal Cliff” law increases taxes

January 9, 2013

TheĀ 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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