BHT&D Certified Public Accountants Blog

Individual Tax Return: Impact of American Taxpayer Relief Act of 2012

Posted by Joe Turnes on Mon, Jul 01, 2013 @ 09:15 AM

Tax Returns and American Tax Relief Act of 2012On January 1, 2012 the American Taxpayer Relief Act of 2012 was passed by the U.S. Congress and signed into law by President Barack Obama on January 2nd. It will take effect in 2013 and will impact most taxpayers. Do you know how this will effect you?

Today's article will address a couple questions we hear about how this new tax law impacts your individual tax returns.

Q. How will the signing of the fiscal cliff legislation impact my individual tax return?

A. The American Taxpayer Relief Act of 2012 will impact most taxpayers.  Highlights of the changes which will take effect in 2013:

  1. The current tax rates will be kept in place for individuals making less than $400,000. Taxable income above $400,000 ($450,000 for married taxpayers/$435,000 for heads of household) will be taxed at 39.6%.
  2. Long-term capital gains rates increase from 15% to 20% for those taxpayers earning more than $400,000 ($450,000 for married taxpayers/$435,000 for heads of household). Long-term capital gain rates will remain unchanged at 0%-15% for those taxpayers with taxable income less than $400,000.
  3. The estate tax rate will rise to 40% (up from 35%) with an exemption of $5.25 million.
  4. Depreciation provisions have been modified:  Section 179 depreciation has been increased to $500,000 for both 2012 and 2013 (an increase from $139,000 and $25,000 respectively) and 50% Bonus depreciation has been extended through December 31, 2013.  These depreciation changes also apply to businesses.
  5. Various tax credits under President Obama’s economic recovery program will be extended five years, including the American Opportunity Tax Credit (tuition credit).
  6. Increases and makes permanent the 2012 alternative minimum tax (AMT) exemption amounts and provides for inflation adjustments in later years.

Q: My employer told me my take-home pay was going to decrease in 2013 due to the new tax law. Why?

A: For two years, employees have enjoyed a 2% reduction in the FICA payroll tax. That will come to an abrupt end beginning with your first payroll check in 2013 when the FICA rate returns to 6.2% (up from 4.2% in 2011 and 2012). Self-employed individuals will have a corresponding increase in SE tax.

If you have questions about this, feel free to comment below or if you would like to speak with one of our CPAs about how this will specifically effect your taxes, fill out this brief form to schedule a complimentary accounting consultation.

Tags: American Taxpayer Relief Act of 2012, Individual Tax Return, Fiscal Cliff Legislation