In the 11th hour, Congress passed a bill to alleviate the impact of the almighty Fiscal Cliff. Here are some of the highlights ** .........
- Ends 2 percent payroll tax cut; taxpayers should expect greater FICA withholding from their next paycheck
- Permanently sets Alternative Minimum Tax (AMT) exemption at $50,600 (single) and $78,750 (joint filers) for 2012 and adjusts for inflation thereafter
- Extends emergency unemployment compensation (EUC) and extended benefits (EB) unemployment insurance program through January 1, 2014
- Retains the doubled child tax credit ($1,000) permanently, its refundable portion through 2017, and the expanded earned income tax credit (EITC) through 2017
- Retains the 10 percent, 15 percent, 25 percent, and 28 percent income tax brackets from the Bush tax cuts permanently
- Retains the 33 percent and 35 percent income tax brackets from the Bush tax cuts for taxable income under $400,000 (single), $425,000 (head of household), and $450,000 (joint filers). Imposes 39.6 percent tax rate on income above this level
- Phases out personal exemptions (PEP) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers)
- Limits itemized deductions (Pease) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers)
- Capital gains tax and dividends tax will be 20 percent for taxpayers with income over $400,000 (single) and $450,000 (joint filers). This does not include the new 3.8 percent health care tax on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income, so the top rate for capital gains and dividends will be 23.8 percent. For lower income levels, the tax will be 0 percent, 15 percent, or 18.8 percent.
- Continues setting the standard deduction for joint filers at 2 times single filers (would have otherwise reverted to 1.67 times single filers)
- Extends American Opportunity Tax Credit (education) through 2017
- Raises estate and gift tax to 40 percent, but above the current exemption level (~$5.12 million) and adjusted for inflation in future years
- Permits 401(k) plan participants to convert their plan to a Roth plan, under which contributions are taxed going in but withdrawals are tax-free. The result is a short-term revenue boost now and more tax-free savings accounts.
- No action on the debt ceiling. The U.S. hit the debt ceiling on New Year's Eve, although Treasury actions to juggle books and defer payments will forestall default until late February. Biden has reportedly pledged to liberal Democrats that the President will not negotiate over the debt ceiling.
Contact me any time with questions on how the Fiscal Cliff bill impacts your unique, tax situation…I’m here to help!!
** Information taken from the following link: CLICK HERE