Congress passed the fiscal cliff deal last night. As part of the deal most of the Bush tax cuts set to expire at the end of 2012 will remain in place for people earning less than $400,000 ($450,000 for couples). If you earn over those amounts in 2013, your tax rates will go up.
Also included in the fiscal cliff deal are various changes to capital gains, estate taxes, the AMT, unemployment insurance, and various deductions and credits.
Fiscal Cliff Tax Deal
Here are the highlights of the fiscal cliff tax deal:
Tax Brackets. The 2013 income tax brackets will keep the 10%, 15%, 25%, 28%, 33% and 35% tax brackets in place from last year. A 39.6% tax bracket will kick in for individuals over $400,000 and married filing joint at $450,000. The higher tax bracket applies only to income over that amount. For more information, see How Do Tax Brackets Work? In addition, because they extended the tax brackets from last year, the Marriage Tax Penalty will not return for people in the lower income tax brackets.
Capital Gains. The capital gains rates will keep the 0% long term capital gains rate for the two lower tax brackets. The 15% tax rate will also remain, but a new 20% capital gains rate will apply for the 39.6% tax bracket.
Itemized Deductions.Personal exemption and itemized deduction phase outs are returning. Individuals with income over $250,000 (and couples over $300,000) will begin to see the phase outs of the deductions and exemptions.
Investment Taxes. The implementation of the 3.8% Affordable Care Act tax on investment income for taxpayers married filing jointly who earn more than $250,000 and for single taxpayers who earn more than $200,000 will go into place as planned.
Your first few paychecks this year might also need some sorting out. The IRS gave the go ahead to employers to proceed with issuing paychecks with higher withholding by February 15. However, if your workplace already cut you a check they may or may not have used the correct tables. In addition, the IRS released a statement last month about possible 2013 IRS Tax Refund Delays if the AMT wasn’t patched. We’ll be keeping a close eye out for their next news release about possible delays from the last minute fiscal cliff deal.
You can read the full H.R. 8 bill for more details. The President said he would sign the bill into law.
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