American "Tax Relief Act"

American "Tax Relief Act" Signed by President Obama

  Pulling back from the “fiscal cliff” at the 13th hour, Congress preserved most of the George W. Bush-era tax cuts and extended many other lapsed tax provisions. Shortly before 2 a.m. Tuesday, the Senate passed the American Taxpayer Relief Act (ATRA), H.R. 8. The House of Representatives approved the bill by a vote of 257 late on Tuesday evening, after plans to amend the bill to include spending cuts were abandoned. The bill was signed by President Obama on Wednesday. Notable items for successful taxpayers include:
 
1 All the individual marginal tax rates under EGTRRA and JGTRRA are retained (10%, 15%, 25%, 28%, 33%, and 35%). A new top rate of 39.6% is imposed on taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse filing separately).
2 The personal exemptions and itemized deductions phaseout is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.
3 A 20% rate applies to capital gains and qualified dividends for individuals above the top income tax bracket threshold; the 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.
4 The exemption amount for the AMT on individuals is permanently indexed for inflation. Relief from AMT for nonrefundable credits is retained.
5 The estate and gift tax exclusion amount is retained at $5 million indexed for inflation ($5.12 million in 2012), but the top tax rate increases from 35% to 40% effective Jan. 1, 2013. The estate tax “portability” election, under which, if an election is made, the surviving spouse’s exemption amount is increased by the deceased spouse’s unused exemption amount, was made permanent by the act.
6 If an employer offers a designated Roth 401(k) plan, ATRA will now allow individuals to convert their existing 401(k) to a Roth 401(k) whether or not the individual is allowed to take a distribution from the plan.