Hereis a listing of the major provisions of the American Taxpayer Relief Act of2012 (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 theJobs and Growth Tax Relief Reconciliation Act of 2003) are made permanent, withthe addition of a new top tax rate for regular income tax and capital gains andqualified dividends.
Theindividual 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.
Thespecial tax rates for capital gains and qualified dividends remains at 15% forthose in the 25% - 35% tax brackets and 0% for those in the 10% and 15%brackets. A 20% rate will apply to thosein the new 39.6% bracket.
(2) The exemption amount for the dreadedAlternative Minimum Tax (AMT) is permanently indexed for inflation, retroactiveto January 1, 2012, as is relief from the dreaded AMT for nonrefundablecredits. For 2012 the exemption amounts are $50,600 for single filers, $78,750for married taxpayers filing joint returns, and $39,375 for separate filers.
(3) The American Opportunity Credit forqualified tuition and other post-secondary education expenses and the recently enhancedprovisions of the Child Tax Credit and the Earned Income Credit are extendedthrough 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 ofpersonal exemptions and itemized deductions based on “excessive” Adjusted GrossIncome (AGI) are reinstated. The amountsof AGI at which the reductions kick in are $250,000 for Single, $275,000 forHead of Household, $300,000 for Married Filing Joint, and $150,000 for MarriedFiling Separate.
Itemized deductions are reduced by3% 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 by2% for each $2,500 ($1,250 if Married Filing Separate), or portion thereof, thata taxpayer’s AGI exceeds the appropriate amounts.
(5) The following “temporary” taxbenefits are extended for 2012 and 2013 -
· Theabove-the-line deduction for certain expenses of elementary and secondaryeducators;
· Theabove-the-line deduction for qualified tuition and related expenses;
· Theitemized deduction as interest for mortgage insurance premiums;
· Theoption to elect to claim as an itemized deduction state and local general salestaxes instead of state and local income taxes;
· Theexclusion from gross income of discharge of qualified principal residenceindebtedness; and
· Theability to make a direct tax-free transfer of IRA distributions to a charityand use this as one’s Required Minimum Distribution (RMD).
Taxpayers can choose to treatdistributions made from an IRA to a charity in January of 2013 as being made inDecember of 2012, and to treat an IRA distribution received in December of 2012as a tax-free transfer to a charity if the money is transferred to a charitybefore February 1 of 2013.
(6) The increased Section 179 expensingamounts and the additional 50% first-year bonus depreciation are extended through2013. For 2012 and 2013 the maximumSection 179 deduction is $500,000, with a “qualifying property threshold” of $2Million.
And under the Act the federal EstateTax and Gift Tax lifetime exclusion of $5 million indexed for inflation ($5.12million 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 bythe deceased spouse’s unused exemption amount) is also permanent.
This legislation also extends forone-year unemployment benefits that were due to expire Jan. 1st, anddelays 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 anextension of the 2% reduction of the employee’s share of Social Security Taxwithholding, and the corresponding reduction in the Self-Employment Tax, whichexpired on December 31, 2012. This wasthe latest incarnation of Dubya’s disastrous tax rebate checks. It appears that no new “gimmick” will replacethe 2% reduction.
Beginning with pay checks issuedafter December 31, 2012, the employee’s share of Social Security Taxwithholding will return to 6.2% of wages (up to the maximum wage base), equalto the employer’s share, and the Self-Employment Tax will return to 15.3% forthe same combined maximum W-2 and net self-employment earnings base . So everyone will get a 2% cut in paybeginning January 1, 2013.
I wish that the idiots in Congresswould have either “fished or cut bait” regarding the “extenders”. Some should have disappeared and other madepermanent (as long as they were making just about everything else permanent).
The deduction for educator expenses hasalways confused me. It is of no realconsequence - the tax savings is $60-$70 for most educators. Depending on where you live, this barelycovers the cost of a dinner out. And whywere educators singled out. Are theymore valuable than policemen, firemen, nurses, EMTs, or even school cafeteriaworkers, all of whom have “out of pocket” employee expenses?
And God only knows why the deductionfor mortgage insurance premiums was ever created. It is basically life insurance. I expect some Congressarseholes owed the mortgageinsurance lobby a favor. It certainlyshould 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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