Broad Tax Relief Included in the American Taxpayer Relief Act – H.R. 8

While the headlines focused on the tax increases for the wealthiest taxpayers, the American Taxpayer Relief Act (probably named that because of the “relief” everyone felt when it was passed yesterday) is full of most of the tax provision extensions that many people wanted with hopeful anticipation. Texans will be glad to know that the federal tax deduction for sales taxes was extended, but just for two years through 2013. The Alternative Minimum Tax fix was made permanent, indexing the threshold income to inflation forever. The tax highlights:

  • Top tax rates extended to 39.6% for taxpayers with taxable incomes over $400,000 ($450,000 for married couples filing jointly)
  • Personal exemptions and itemized deductions are phased out for taxpayers with incomes starting at $250,000 ( ($300,000 for married couples filing jointly
  • Capital gains and dividend tax rates are raised to 20% for those taxpayers with incomes above the top tax bracket threshold
  • The estate and gift tax exclusion is set at $5 million, but the tax rate is increased to 40%

The Act also extends unemployment benefits for a year, but does not extend the payroll tax cuts. Physician reimbursement rates are once again saved from the automatic draconian cuts due to take affect yesterday. Sequestration, the supposedly automatic huge federal budget cuts were postponed until March.

There are numerous other tax provisions extended that were due to expire at the end of 2011 or 2012. For a more complete explanation of these changes, see this Journal of Accountancy article.

The Act also includes a provision that allows employees to convert 401(k) plans to Roth 401(k) plans. See the detail in this Investment News article.

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