As you may have noticed, Congress managed to pass new tax legislation late in the day on January 1, 2013. I watched it live on MSNBC. Riveting, I know. Below, is a summary of the major points of the law, some other laws that were effective January 1, 2013.
1) Income Taxes: Income taxes will remain largely unchanged for individuals earning less than $400,000 and couples earning less than $450,000 per year (to be indexed to inflation in future years). For individuals and couples over that threshold, marginal rates will increase from 35% to 39.6%, and the tax rate on capital gains and dividends will increase from 15% to 20%. (Remember that the Affordable Care Act also imposes a 3.8% tax on investment income pushing taxable income above the $250,000 threshold.) Personal exemptions will begin to phase out at $250,000 for individuals and $300,000 for couples.
2) Estate and Gift Taxes: The estate tax exemption has been permanently (until Congress decides to change it) set at $5.12 million (indexed to inflation) and unified with the gift tax. The top tax rate will rise from 35% to 40%. Many clients will breathe a sigh of relief at this news. For business owners and others who will still be caught by the tax, there are still tax-saving opportunities available. Spousal portability has been continued.
3) Payroll Tax: The tax “holiday” has not been extended, as Congress has restored the employee portion of the payroll tax from 4.2% to 6.2% in 2013.
4) AMT: In another semi-permanent fix, the alternative minimum tax threshold has been set at $78,500 for married couples and $50,600 for individuals in 2012 and has been indexed for inflation in future years.
5) Medicare and Long-Term Care Costs: Of interest in the area of elder law, Congress included a one-year “doc-fix” to prevent cuts in Medicare payments to physicians. Congress has also officially repealed the CLASS Act, an effort to combat the costs to individuals of long-term care; the Secretary of Health and Human Services had previously found that the CLASS Act lacked adequate funding to make it revenue-neutral, as required by the law. In its place, Congress has established a Commission on Long-Term Care to study the problem.
6) The bill includes additional provisions regarding individual and business taxes and energy policy.