“Fiscal Cliff” Tax Hikes Avoided For Many

Photo by Arvind Balaraman

A summary of the legislation passed by Congress and sent to the President for his signature is as follows:

1. The 2012 rates for taxable incomes below $450,000 ($400,000 if single) have been permanently extended. The top bracket was 35% over $388,350 (married). It will now be $388,350 - $450,000. Over $450,000 will be 39.6% 

2. The capital gain and qualified dividend rate will remain 15% for taxable incomes below $450,000 ($400,000 if single) and will increase to 20% for taxable incomes above $450,000.

3. The Alternative Minimum Tax rate will permanently adjust the income exemption levels for inflation.

4. Itemized deductions will be limited to 3% of adjusted gross income above specified thresholds beginning at $300,000 ($250,000 is single) but not more than 80 percent.  

5. The estate tax exemption level of $5,120,000 has been permanently extended and will be indexed to inflation for future years.  The current estate tax rate of 35% is increased to 40%.

6. The scheduled 27% cut in reimbursement for Medicare services is extended for one year.

7. The extended benefits for long-term unemployed are extended for one year. 

8. The dreaded automatic and blunt spending cuts to defense and non defense programs have been extended for two months. The cuts, if left in place, would have reduced spending by $110B.

9. Several other miscellaneous credits including Child tax credit and Earned income tax credit were extended for 5 years.