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Summary of Tax Law Changes 2013 (Fiscal Cliff Deal)

Summary of Tax Law Changes 2013

As you know by know, the Congress and the President have finally agreed to a fiscal cliff deal.  While I haven’t had a chance to read all 157 pages of the American Taxpayer Relief Act of 2012 yet, here is what I can gather from most major news sources:

1) The federal estate tax, gift tax and the federal generations skipping transfer (GST) tax will continue to have $5,000,000 exemptions, indexed for inflation.  The estate tax, gift tax and GST tax exemption amounts were $5,120,000 for 2012.  It will be $5,250,000 for 2013 after the most recent inflation adjustment.  The highest rate will go up from 35% to 40%.  This is a permanent change to the law.

  Note: Technically there are mulitiple rates for estates under $5,250,000.  This will not affect most people, but it can affect non-resident aliens with significant assets in the US or people who are otherwise not entitled to the full estate tax exemption.

2)  The income tax rates for 2013 are:

                            Married Filing Jointly          Single
     10% Bracket    $0 – 17,850                      $0 – 8,925
     15% Bracket    $17,850 – 72,500              $8,925 – 36,250
     25% Bracket    $72,500 – 146,400            $36,250 – 87,850
     28% Bracket    $146,400 – 233,050          $87,850 – 183,250
     33% Bracket    $233,050 – 398,350          $183,250 – 398,350
     35% Bracket    $398,350 – 450,000          $398,350 – 400,000
     39.6% Bracket $450,000 and up              $400,000 and up

    The change here was an increase in the top rate for married couples earning $450,000 or more and individuals earning $400,000.  For Head of Household, I believe it is $425,000.  The amounts here have been indexed for inflation for 2013.

3) Payroll taxes will increase to 6.2%, reverting back to the levels of 2010.

4) There will also be a phaseout of personal exemptions for individuals earning more than $250,000 and couples earning more than $300,000.  Head of Household limit is $275,000.  These appear to be indexed for inflation.

5)  Permanently indexes Alternative Minimum Tax (AMT) for inflation.

6)  Capital Gains Tax Rates for 2013 go from 15% to 20% for individuals earning $400,000 or more and couples earning $450,000 or more.  It will stay at 15% for everyone else.  (Caveat:  It is unclear to me at this stage whether the $400,000 & $450,000 threshhold refers to all earnings or simply earnings from dividends and capital gains.)

7) Extension for 5 years of the child tax credit and $2,500 tax credit for college tuition.

8) Extension for 1 year of the accelerated “bonus” depreciation on business investments.

9) Extension of tax free distributions from individual retirement plans for charitable purposes.

In other news, the 2503(b) annual exclusion amount was will increase from $13,000 to $14,000 as it was indexed for inflation.  This is not as part of the Fiscal Cliff deal.

Revised on January 11, 2013. Indexing brackets for inflation.