Most new/changes to the tax law took place when the American Taxpayer Relief Act of 2012 (ATRA) was signed on January 2, 2013.
Individual Income Tax Rates – tax years after 2012 the rates of 10%, 15%, 25%, 28% , 33% and 35% are permanent. Starting in tax year 2013 the new 39.6% rate starts for taxpayers with income over the following amounts
Married filing Jointly & Surviving Spouse $450,000
Head of Household $425,000
Married filing Separately $225,000
Capital Gains & Qualified Dividends – Top tax rate of 20% is set permanently. For 2013 the income threshold is the same as the 39.6% tax rate. However with the new Net Investment Income (NII) tax of 3.8% the rate is actually 23.8%. For taxpayers at under 25% rater the Capital Gains and Dividends rate is still 0%. Under 39.6% to 25% the rate is 15% for Capital Gains and Dividends.
Marriage Penalty Relief – The ATRA made the standard deduction for a married filing joint return double the standard deduction for a single filer permanent. Also the 15% tax bracket for MFJ is now 200% of the 15% tax bracket for a single filer.
Personal Exemption Phase-out – The ATRA reinstated the phase-out of personal exemptions.
Filing Status AGI Beginning of Phase-out AGI Completed Phase-out
MFJ, Qualified $300,000 $422,500
HH $275,000 $397,500
S $250,000 $372,500
MFS $150,000 $211,250
Higher income taxpayer’s total allowable itemized deductions are reduced by 3% up to 80% based on AGI thresholds
Filing Status 2013 AGI Threshold
MFJ, QW $300,000
American Opportunity Credit
The credit is equal to 100% of the first $2000 of qualified tuition and related expenses and 25% of the next $2000 for a total credit of $2500. The first $1500 of the credit is deducted from the tax liability and the $1000 is refundable. This credit is for the first four years of post-secondary education.
Child Tax Credit
The ATRA extended the $1000 per child tax credit until 2017. The credit can be refundable based on income and tax liabilities. This credit is for children 16 and under. Once a child turns 17 the taxpayer is no longer eligible for this credit.
Earned Income Credit
The ATRA extends EIC for up to 3 children until 2017.
Energy Credit for Individuals
The credit for installing certain energy efficient items in a personal residents will continue in 2013. The lifetime credit is $500 with a limit of $200 for windows and skylights.
Higher AGI threshold for student loan interest deductions is now permanent and the 60 month limit is eliminated permanently.
Coverdell ESA $2000 contribution is extended permanently.
Exclusion from income and employment taxes employer-provided education assistance up to $5250 is permanently extended. Also restores the exclusion for graduate-level courses.
Extends permanently the child and dependent care credit rate of 35%, the $3000 cap on expenses for one child and $6000 on two or more children.
Expiring on December 31, 2013
Above the line deduction for qualified tuition expenses.
Extends the teacher’s classroom expense of $250.
The exclusion of cancellation of indebtedness on qualified principal residence of up to $2million.
Deduction of PMI premiums.
State and local sale tax (including vehicle sales tax) deduction.
Tax free IRA distributions of up to $100,000 donated to a qualified charity.by