Dallas, TX (PRWEB) March 12, 2013
Remember all the talk about the impending fiscal cliff a couple of months ago? The fiscal cliff problems involved a list of expiring tax issues and congressionally mandated spending cuts. The expiring tax issues, at least, were mostly addressed in a new law, the American Taxpayer Relief Act of 2012, which made a number of changes in existing tax rules, while also maintaining some important rules that have an impact on many taxpayers. The Texas Society of CPAs offers a rundown of what you need to know about the new rules this year.
Higher Payroll Taxes
As of January 1, you may have noticed a slight drop in your take-home pay. That’s due to the expiration of an existing two-percentage-point cut in the employees’ portion of the Social Security payroll tax, returning it to 6.2% on income up to $113,700 in 2013. A couple with each spouse earning $50,000 will see their total taxes go up $2,000 a year as a result. In addition, some taxpayers may also be paying a new .9% Medicare surtax on income in excess of $250,000.
Top Earners Will Pay More
Most Americans’ tax rates remain the same under the law for 2012, but, beginning in 2013, there is now a new 39.6% rate for many high-income individuals, as well as a higher rate on capital gains and dividends, plus a new 3.8% addition to income tax rates on Net Investment Income. In addition, the phase-out levels for personal exemptions and itemized deductions have gone up for some higher-income taxpayers.
AMT Issues Addressed
Many middle income taxpayers have increasingly been threatened by the alternative minimum tax—or AMT—an alternate tax that was actually created to prevent high income individuals from avoiding taxes. The problem was that the AMT threshold was never adjusted for inflation, even as inflation pushed more middle income people into its range. Congress has generally passed last-minute patches addressing the problem every year, but the new law permanently indexes the AMT to inflation.
New Estate and Gift Tax Rules
The new law brought at least some temporary stability to estate and gift taxes, but long-term planning is still necessary. Under the law, the estate and gift tax exclusion remains at an inflation-adjusted $5 million indexed for inflation ($5.12 million in 2012 and $5.25 million this year). The top tax rate was raised to 40% from 35% as of January 1, 2013. However, those rules are set to expire at the end of this year, so be sure to consult with your CPA about prudent estate planning steps. Elsewhere, the newly permanent estate tax portability election allows a surviving spouse to use a deceased spouse’s unused exemption amount.
Good News for Families
Families will be happy to hear that the child and dependent care credit has been made permanent, along with the $1,000 child tax credit and the adoption credit. In addition, the earned income tax credit has been extended through 2017 for lower-income families with three or more children.
Many Kinds of Relief Retained
Existing relief from the marriage penalty was made permanent and joint filers now have a larger standard deduction. Many deductions for education expenses set to expire at the end of last year will also remain in place under the new law, including the deduction for qualified education expenses, which was extended through 2013. Emergency unemployment benefits stay in force through the end of the year, and if you’re one of many Americans having trouble paying a mortgage, or whose home value is now lower than the original purchase price, you can rely on another year of tax relief in the event of a loan modification or short sale.
Consult Your Local CPA
The new law also loosens some restrictions on transfers to Roth IRAs. From retirement to estate planning to your current paycheck, recent tax changes have clearly had an impact. This article provides an overview of some of the key provisions of the new law, but your local CPA is the best source of information for any questions about your taxes. He or she can help you address all your financial concerns.
TSCPA (http://www.tscpa.org) is a nonprofit, voluntary, professional organization representing Texas CPAs. The society has 20 local chapters statewide and has more than 28,000 members, one of the largest in-state memberships of any state CPA society in the United States. TSCPA is committed to serving the public interest with programs that advance the highest standards of ethics and practice within the CPA profession.