Fiscal Cliff Tax Changes

There is a phase-out of the personal exemption for individuals making more than $250,000 and couples making more than $300,000. The “Pease“ limitation on deductions, which had previously been suspended, is reinstated with a threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Thus, for taxpayers subject to the “Pease” limitation, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer's AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions

Income above $400,000 for individuals and $450,000 for couples will be taxes at a rate of 39.6%, up from 35%.

The 2% employee payroll tax cut on social security withheld from paychecks was allowed to lapse, so effective January 1, 2013 all employees must pay the 6.2% social security tax.

Tax credits for research and development costs, renewable energy such as wind energy were extended for one year only

The $1,000 child tax credit, the enhanced earned income tax credit, and the $2,500 American Opportunity college tuition credit has been extended

Capital gains and Qualified Dividend rates remain at 15% for individuals with income up to $400,000 and families up to $450,000. Capital gains and Dividends for income exceeding those limits would be taxed at 20%

Finally Congress has permanently addressed the alternative minimum tax issue and indexed the annual exemption limits for inflation, retroactive for 2012.

The first $5.12 million of one' estate valuation remains exempt from federal estate tax and will be indexed for inflation but the top tax rate on estates was changed from 35% to 40% for 2013.

Tax Credits extended include the Returning Heroes and Wounded Warriors Work Opportunity Tax Credit, the New Markets Tax Credit, The Low-Income Housing Tax Credit, the Research and Development Tax Credit and tax credits for Clean Energy