American Taxpayer Relief Act of 2012 Passed– January 02, 2013

The financial markets avoided going over the fiscal cliff today because of the House passage of the American Taxpayer Relief Act of 2012 HR 8 by a vote of 257-167. Many high ranking Republicans, including the House Majority Leader Eric Cantor, sought to amend the law to include a package of spending cuts but without success. The Senate passed this same bill 89-8 in the early morning hours of January 1 following a last minute agreement reached between Senate Minority Leader Mitch McConnell and Vice President Joe Biden.

Following are some of the major provisions included in HR 8.

  • Extend the Bush era tax cuts for individuals earning under $400,000 annually and $450,000 for couples. Earnings above those amounts would be taxed at a rate of 39.6%, up from the current 35%.

  • Establish the estate tax top marginal rate at 40%, with an inflation adjusted exemption for estates under $5 million and spousal portability.

  • Provide a permanent patch for the AMT.

  • Tax dividends and capital gains at 20% for individuals earning over the $400,000 and $450,000 for couples.

  • Reinstated the Pease limit on itemized deduction (3% reduction) for income of $300,000 and the Personal Exemption Phase-out for $250,000.

Many business extenders were included in the Bill, including a two-year extension of the R&D credit through 2013 and extension of the 15-year life for Qualified Leasehold Improvements, Qualified Restaurant Property and Qualified Retail property. Also, favorable depreciation provisions were also included for 2013, including 50% bonus depreciation for 2013 and Section 179 expensing at $500,000 (with a phaseout at $2 million of additions). The new markets tax credit was renewed as well.

For individuals, extensions of the personal tax credits for child care, college tuition and Earned Income Credit for five years were included. Jobless benefits for the long-term unemployed were extended for one year, and cuts in Medicare reimbursements to doctors were blocked.

The bill does not include an extension of the 2% employee payroll tax holiday.

The legislation delays the budget sequestration spending cuts for two months. However, it does not address the increase of the debt ceiling and this sets the stage for another fight between Democrats and Republicans in the new term.

For specific information regarding these and other provisions included in HR 8, please contact a member of our tax department.