ATRA, at its core, made the Bush Era tax cuts permanent for taxpayers who make less than $450,000 (joint), $400,000 (single), or $425,000 (head of household). For anyone above those limits the tax cuts were allowed to sunset, meaning the reintroduction of the 39.6% marginal tax bracket, as well as the 20% long-term capital gains rate.
These have all been talked to death, but here are the highlights in case you’ve missed any of the salient points for federal income tax:
- 39.6% tax bracket reintroduced for taxable income of $450,000/$400,000
- 20% long-term capital gains rate for taxable income of $450,000/$400,000
- Qualified dividends preferred tax rate retained permanently
- Reintroduction of Pease Itemized Deduction Limitation
- Reintroduction of personal exemption phase-out
- Pease Limitation and personal exemption phase-out unified at $300,000/$250,000
- State sales tax itemized deduction extended through 2013
- Child Tax Credit at $1,000 made permanent
- Extension of the American Opportunity Tax Credit through 2017
- Earned Income Credit has several aspects made permanent or extended through 2017
- Adoption Credit made permanent
- Child and Dependent Care Credit made permanent at 35% rate with $3,000/$6,000 cap
- Coverdell enhancements made permanent (including $2,000 max contribution)
- Teacher’s classroom deduction extended through 2013
- Cancellation of indebtedness income from cancellation of mortgage debt on a primary residence up to $2 million extended through 2013
- Mortgage Insurance Premiums will continue to be treated as deductible interest through 2013
- Tax-free IRA distributions to charity of up to $100,000 extended through 2013 (counts toward RMD)
And don’t forget the changes coming in 2013 from the Patient Protection and Affordable Care Act, including:
- 3.8% Medicare tax on net investment earnings for those with an AGI over $250,000/$200,000
- Additional .9% Medicare tax on earnings for those with an AGI over $250,000/$200,000
- Itemized deduction for medical expenses now has a 10% floor instead of 7.5%
This is the final article on our special ATRA blog post series. In case you missed the earlier posts, here are the links to part 1 and 2 of the ATRA series:
TOTAL Planning Suite Users, the 2013 tax updates are available! Click the image on the right to update your financial planning software to the latest version.
