On Jan. 2, 2013, President Obama signed the “American Taxpayer Relief Act of 2012” (the “Act”) which was passed by the House and Senate the previous day to avoid the so-called “fiscal cliff.” The Act prevents many of the tax hikes that were scheduled to go into effect in 2013 and retains many favorable tax breaks that were scheduled to expire. However, it also increases income taxes for some high-income individuals and slightly increases transfer tax rates. This Alert provides an overview of the key income tax provisions of the Act.
The income tax rates for most individuals will stay at 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. However, a 39.6 percent rate will apply for income above the “applicable threshold.” The applicable threshold is $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000(one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. These dollar amounts are inflation-adjusted for tax years after 2013.
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