Summary of The American Taxpayer Relief Act

On the first day of the year 2013, the United States Congress passed House Resolution 8, better known as the American Taxpayer Relief Act (ATRA) of 2012. Aside from preventing a headlong dive off the proverbial fiscal cliff, ATRA extends some of the Bush-era tax cuts and introduces new provisions that may or may not help to curb the budget deficit and stimulate the American economy.

Langdon & Company LLP have experienced Raleigh tax service professionals available who understand the tax laws and how they may impact individuals or specific businesses.

In essence, some of the most significant ATRA provisions will have the following effect:

Taxation of Individual Income

Effective immediately, single taxpayers who earn $400,000 of more per year will be subject to a 39.6 percent tax rate. The same goes for couples who earn $450,000 and file jointly.

For heads of household, the 39.6 rate will apply when they earn $425,000 or more. Married couples who choose to file separate tax returns will be taxed at that rate if each spouse earns $225,000 or more.

Taxation of Capital Gains and Dividends

The tax rate for investment income increases from 15 percent to 20 percent in 2013, but only for those individuals who earn $400,000 or more per year. Joint filers who report more $450,000 or more will also be subject to the new tax rate on capital gains from stock transactions and dividends.

ATRA also applies a surtax on gains from investments of 3.8 percent, which means that those who enjoy a significant amount of income from their investments will pay up to 23.8 percent beginning in 2013.

Limits on Tax Exemptions for High-Income Earners

If the Adjusted Gross Income (AGI) of the following taxpayers exceeds the amounts below, the exemptions they can claim are reduced by two percent in $2,500 increments until depleted:

  • Single filers: $250,000
  • Joint filers: $300,000
  • Married but filing separately: $150,000
  • Head of household: $275,000

Payroll Taxes

Wage earners will see their social security taxes jump from 4.2 percent to 6.2 percent in 2013.

Alternative Minimum Tax (AMT)

More taxpayers will be able to escape AMT starting this year, including:

  • Single filers and heads of household earning up to $50,600
  • Joint filers earning up to $78,750
  • Married but filing separately: $39,375

Individual Tax Credits

The earned income credit (EIC), child tax and college tuition credits remain in effect for the next five years.

Mortgage Debt Relief

Homeowners who avoid foreclosure through the process of short sale will not be taxed on the amount of mortgage debt that is forgiven at closing. This is a special tax provision that has been extended for just one year.

Mortgage Interest Deduction

Homeowners will still be able to deduct the amount of interest they pay on their mortgage, at least until the end of 2013.

Langdon & Company LLC is a North Carolina CPA firm offering a broad range of audit, accounting, tax and advisory services throughout the southeastern U.S. Contact Langdon & Company LLP and a representative can discuss how the American Taxpayer Relief Act may affect a particular business or individual.