01/02/2013
On New Year's Eve the Senate finally passed a Tax Bill. That bill was sent to the House for a vote on New Year's Day and despite their lack of enthusiasm for the bill the House voted yesterday to pass the bill by a vote of 257 yea - 167 nay. So we now have 2013 tax laws and we aren't going over the fiscal cliff. (Given of course that the president signs the bill which he is almost sure to do.)
The highlights of the bill are as follows:
-The tax cuts were extended – permanently – for all but those at the top. For this purpose, the top means $400,000 for individual filers and $450,000 for married couples. The top tax rate will increase to 39.6% from 35%.
-The personal exemption phaseout restrictions on limitations were also extended. The applicable thresholds for the caps are $250,000 for individual filers and $300,000 for married couples.
-Capital gains tax rates and dividend tax rates stay low for most taxpayers. Taxes on capital gains and dividends will increase to 20% for taxpayers at the top.
-The alternative minimum tax (AMT) will be permanently adjusted for inflation. Congress hasn’t fixed this in more than 40 years. Each year, they put a “patch” on it instead of actually doing anything to fix it.
-Also extended for five years (not permanently) are number of individual tax credits including the child tax credit, the earned income tax credit (EITC), and the American Opportunity Tax credit.
-A couple of deductions were extended, including the deduction for school teachers expenses and the tuition and fees deduction.
-The option to deduct state and local sales taxes in place of state and local income taxes was extended for a year.
-Payroll taxes are going up. As expected, the payroll tax holiday has expired. The employee portion of Social Security contributions will return to 6.2%. They have been 4.2% for the past 2 years.
-The federal estate tax exemption remains at $5.12 million (indexed for inflation). The top tax rate will be 40%, higher than the current rate of 35% but lower than what would have happened without passage of the bill.
-Long-term unemployment benefits are extend for one year.
-The farm bill was also extended so we don't need to worry about the price of milk going to $7 gallon in 2013.
