Rates of Change: The Effect of the American Taxpayer Relief Act of 2012 on Individual and Fiduciary Income Taxes


For all the public discussion in 2012 of the need for a significant reformation and restructuring of the Internal Revenue Code, the income tax provisions of the American Taxpayer Relief Act of 2012 (the 2012 Act) are at their core simply an adjustment to tax rates. That is not to say, however, that the 2012 Act, which was signed into law by President Obama on January 2, 2013, creates simplicity—in fact, by creating a variety of different thresholds at which top marginal rates on various types of income apply, the new law has created additional complexity for taxpayers.

New Rates for Individuals. Here’s a summary of the effect of the 2012 Act on individual income tax rates:

- Ordinary Income. For most taxpayers, Bush-era tax rates on ordinary income were reinstated and made permanent. However, individuals with taxable income of more than $400,000 and married couples filing jointly (hereinafter referred to simply as married couples) with taxable income of more than $450,000 are now subject to a top marginal rate of 39.6%.

- Long-Term Capital Gains and Qualified Dividends. The 2012 Act reinstates the 0% rate for long-term capital gains and qualified dividends of lower-income taxpayers, and makes permanent the 15% rate on those types of income for most other taxpayers.Individuals and married couples subject to the 39.6% marginal rate on ordinary income will be subject to a 20% rate on all or part of their long-term capital gain and qualified dividend income.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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