Here
is a listing of the major provisions of the American Taxpayer Relief Act of
2012 (passed in 2013) that affect Form 1040 (and 1040A) filers, based on my readings -
(1) All the expiring “Bush” tax cuts
(from the Economic Growth and Tax Relief Reconciliation Act of 2001 and the
Jobs and Growth Tax Relief Reconciliation Act of 2003) are made permanent, with
the addition of a new top tax rate for regular income tax and capital gains and
qualified dividends.
The
individual marginal tax rates will remain 10%, 15%, 25%, 28%, 33%, and 35%,
with a new top rate of 39.6% on taxable income over $400,000 for Single,
$425,000 for Head-of-Household filers, $450,000 for Married Filing Joint, and
$225,000 Married Filing Separate.
The
special tax rates for capital gains and qualified dividends remains at 15% for
those in the 25% - 35% tax brackets and 0% for those in the 10% and 15%
brackets. A 20% rate will apply to those
in the new 39.6% bracket.
(2) The exemption amount for the dreaded
Alternative Minimum Tax (AMT) is permanently indexed for inflation, retroactive
to January 1, 2012, as is relief from the dreaded AMT for nonrefundable
credits. For 2012 the exemption amounts are $50,600 for single filers, $78,750
for married taxpayers filing joint returns, and $39,375 for separate filers.
(3) The American Opportunity Credit for
qualified tuition and other post-secondary education expenses and the recently enhanced
provisions of the Child Tax Credit and the Earned Income Credit are extended
through 2017. The basic “Bush-era”
increases to the Child Tax Credit (from $500 to $1,000 per qualifying child)
and the Earned Income Credit are made permanent.
(4) The PEP and Pease reductions of
personal exemptions and itemized deductions based on “excessive” Adjusted Gross
Income (AGI) are reinstated. The amounts
of AGI at which the reductions kick in are $250,000 for Single, $275,000 for
Head of Household, $300,000 for Married Filing Joint, and $150,000 for Married
Filing Separate.
Itemized deductions are reduced by
3% of the amount a taxpayer’s AGI exceeds the appropriate amount. The reduction cannot exceed 80% of itemized deductions,
with some adjustments.
Personal exemptions are reduced by
2% for each $2,500 ($1,250 if Married Filing Separate), or portion thereof, that
a taxpayer’s AGI exceeds the appropriate amounts.
(5) The following “temporary” tax
benefits are extended for 2012 and 2013 -
·
The
above-the-line deduction for certain expenses of elementary and secondary
educators;
·
The
above-the-line deduction for qualified tuition and related expenses;
·
The
itemized deduction as interest for mortgage insurance premiums;
·
The
option to elect to claim as an itemized deduction state and local general sales
taxes instead of state and local income taxes;
·
The
exclusion from gross income of discharge of qualified principal residence
indebtedness; and
·
The
ability to make a direct tax-free transfer of IRA distributions to a charity
and use this as one’s Required Minimum Distribution (RMD).
Taxpayers can choose to treat
distributions made from an IRA to a charity in January of 2013 as being made in
December of 2012, and to treat an IRA distribution received in December of 2012
as a tax-free transfer to a charity if the money is transferred to a charity
before February 1 of 2013.
(6) The increased Section 179 expensing
amounts and the additional 50% first-year bonus depreciation are extended through
2013. For 2012 and 2013 the maximum
Section 179 deduction is $500,000, with a “qualifying property threshold” of $2
Million.
And under the Act the federal Estate
Tax and Gift Tax lifetime exclusion of $5 million indexed for inflation ($5.12
million in 2012) is made permanent, with the top tax rate increasing from 35%
to 40% effective Jan. 1, 2013. The option of the Estate Tax “portability”
election (under which the surviving spouse’s exemption amount is increased by
the deceased spouse’s unused exemption amount) is also permanent.
This legislation also extends for
one-year unemployment benefits that were due to expire Jan. 1st, and
delays until March 1 the across-the-board budget cuts known as “sequestration”
that were supposed to take effect on January 2nd.
What is noticeably missing is an
extension of the 2% reduction of the employee’s share of Social Security Tax
withholding, and the corresponding reduction in the Self-Employment Tax, which
expired on December 31, 2012. This was
the latest incarnation of Dubya’s disastrous tax rebate checks. It appears that no new “gimmick” will replace
the 2% reduction.
Beginning with pay checks issued
after December 31, 2012, the employee’s share of Social Security Tax
withholding will return to 6.2% of wages (up to the maximum wage base), equal
to the employer’s share, and the Self-Employment Tax will return to 15.3% for
the same combined maximum W-2 and net self-employment earnings base . So everyone will get a 2% cut in pay
beginning January 1, 2013.
I wish that the idiots in Congress
would have either “fished or cut bait” regarding the “extenders”. Some should have disappeared and other made
permanent (as long as they were making just about everything else permanent).
The deduction for educator expenses has
always confused me. It is of no real
consequence - the tax savings is $60-$70 for most educators. Depending on where you live, this barely
covers the cost of a dinner out. And why
were educators singled out. Are they
more valuable than policemen, firemen, nurses, EMTs, or even school cafeteria
workers, all of whom have “out of pocket” employee expenses?
And God only knows why the deduction
for mortgage insurance premiums was ever created. It is basically life insurance. I expect some Congressarseholes owed the mortgage
insurance lobby a favor. It certainly
should not have been extended.
As mentioned in an earlier post,
there is absolutely no “tax reform” in the Act.
CCH has published a good "Tax Briefing" on the Act. Click here to download the briefing.
TTFN
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