What Was Approved in the Fiscal Cliff?
Taking every last minute available in 2012 and then some, yesterday Congress approved a bill that will reduce the nation’s deficit by raising taxes for high income earners. Discussions in Washington continued well past midnight, changing income and estate taxes for Americans.
- Estate tax increase. Raised from 35%, the new 40% estate tax rate has an exemption of $5.12 million per person.
- Capital gains tax increase. Dividends and capital gains will be taxed at 23.8%. This rate includes the new 20% capital gains tax as well as the 3.8% surtax from the Affordable Care Act. (The surtax applies only to individuals with over $200,000, and married couples filing jointly with over $250,000, in modified adjusted gross income.)
- Income tax increase. Raised from 35%, the new 39.6% tax rate for high-income households will raise $620 billion in revenue. (The income tax applies to individuals earning $400,000 annually and married couples earning $450,000 annually.)
- Social Security tax increase. The payroll tax cut expired at the end of 2012 and was not extended in the new bill. Taxes are anticipated to rise 2%.
- Limited tax benefits. Individuals with incomes over $250,000 and married couples with incomes over $300,000 will be affected by the Personal Exemption Phaseout and the phaseout of itemized deductions.
- 5-year tax break extension for: Child Tax Credit, Earned Income Tax Credit, and the American Opportunity Tax Credit.
- 1-year tax break extension of 50% bonus depreciation.
- 1-year extension in unemployment benefits.