Congress averts tax portion of fiscal cliff

Congress averts tax portion of fiscal cliff

After weeks of negotiating, Congress was finally able to pass legislation that addresses the tax portion of the “fiscal cliff” issue. The new law, the “American Taxpayer Relief Act of 2012,” keeps the Bush-era tax cuts for the majority of taxpayers, but adds a 39.6% tax bracket for singles with incomes in excess of $400,000 and couples with incomes over $450,000.

The alternative minimum tax is permanently “fixed,” with higher exemptions for 2012 and 2013 and inflation adjustments done annually. The estate tax exemption is set at $5 million (inflation adjusted), with a top rate of 40%. Capital gains and dividends will be taxed at 2012 rates except for a higher 20% rate assessed on high-income taxpayers.

Businesses can expense up to $500,000 of equipment purchases for 2012 and 2013, and 50% bonus depreciation is extended through 2013.

One provision not extended was the “payroll tax holiday”; social security taxes withheld from paychecks will be at a 6.2% rate, rather than the 2012 level of 4.2%.

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