Happy New Year! On New Year’s Day the American Taxpayer Relief Act of 2012 was voted into law. As we waited for the ball to drop in New York, Congress was urgently trying to avoid the “fiscal cliff.” Here is a summary of the result:
When Will Tax Filing Season Start
The IRS will begin to update forms, instructions, and systems in order to adopt the extender provisions. Some state tax agencies will also have to adapt accordingly. Because the bill includes the extenders, we anticipate filing delays similar to those of the 2011 filing season (2010 tax year). Many taxpayers will not be able to file until mid-February, but we will keep you informed as the IRS provides more information.
Key 2012 Provisions in the American Taxpayer Relief Act of 2012:
- The Alternative Minimum Tax exemption is permanently indexed to inflation and thus avoids the annual “patch” that was required to prevent middle-class families from getting hit by AMT Tax.
- Marginal income and capital gains tax rates would increase relative to their 2012 levels for those with annual income over $400,000 for individuals and $450,000 for couples, but the rates below these levels would remain at their 2012 levels. The highest income rate would increase from 35% to 39.6%, and capital gains rate would increase from 15% to 20%.
- A phase-out of tax deductions and credits for incomes over $250,000 for individuals and $300,000 for couples would be reinstated. Limits on deductions had existed before the Bush tax cuts, and had disappeared in 2010.
- Estate taxes would be set at 40% of the value above $5,250,000, indexed for inflation, an increase from the 2012 rate of 35% of the value over $5,120,000
- Educator expense deduction, sales tax deduction and tuition and fees deduction were all extended
- The two percent reduction in payroll taxes expires and employees will see small net paychecks starting in January 2013.
- Some tax credits for families would be extended for five years, including ones for college tuition and an expansion of the Earned Income Tax Credit.
Thank you for your patience as we continue to prepare for the 2013 filing season. We look forward to serving you this year.