As a result of last minute wrangling and voting, Congress extended many of the lower tax rates and exemptions that were scheduled to expire on December 31. Here is a summary of the key provision from the “American Taxpayer Relief Act” of 2013:
Individual tax rates stay at 10, 15, 25, 28, 33 and 35 percent with a new tax rate of 39.6% .
The top rate applies to income levels above:
- Joint Filers $450,000
- Single Filers $400,000
- Head of Household $425,000
- Married separate filers $225,000
Personal exemptions phase out by reducing your personal exemptions by 2% for every $2,500 that AGI exceeds:
- $300,000 for joint filers
- $275,000 for head of household
- $250,000 for single filers
- $150,000 for married filing separate
Itemized deductions phase out by reducing you itemized deductions by 3% of the amount by which AGI exceeds:
- $300,000 for joint filers
- $275,000 for head of household
- $250,000 for single filers
- $150,000 for married filing separate
Capital gains, including qualified dividends, will be taxed at:
- 0% for those in the tax brackets below 25%
- 15% for those in the brackets from 25% to 35%
- 20% for those in the 39.6% bracket
Estate and gift tax rates increase to 40% instead of 55% and the unified credit for estate and gift tax exemption stays at $5 million and that amount if now indexed for inflation. Portability of unused credit between spouses is also retained.
Section 179 and 50% bonus depreciation were extended at the same rates as 2012 along with 15 year depreciation for qualified leasehold improvements. The option to deduct sales tax is extended for individuals in states without an income tax. There are some other minor extensions such as the 5 year period for taxation of built-in gains for S Corporations and extension of tax free distributions from IRA to charities.
Probably the biggest item that was not extended was the payroll tax cut, so effective January 1 FICA taxes taken out of employees paychecks went back to 6.2% which combined with Medicare tax is now 7.65% again and the combined self-employed tax rate will go back to 15.3% for 2013.
The entire bill can be read at:http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf
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