On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 (the “Act”), which halts tax increases scheduled to go into effect for most Americans as part of the so-called fiscal cliff. The Act generally allows tax rates to rise on higher-income individuals but extends certain favorable tax provisions for individuals and businesses. This alert briefly summarizes some of the key federal income tax provisions of the Act.

Individual Provisions -

Extension of Certain Individual Ordinary Income Tax Rates and Introduction of New High-Income Bracket -

The Act preserves the 25%, 28%, 33% and 35% brackets, which were set to rise at the beginning of 2013, and adds a new 39.6% bracket applicable to taxable income exceeding (i) $450,000 for married individuals filing jointly or (ii) $400,000 for individual filers. The income thresholds for each bracket will now be adjusted for inflation. Note that the Patient Protection and Affordable Care Act imposes additional Medicare taxes, also effective on January 1, 2013, of (i) 3.8% upon certain investment income and (ii) 0.9% on certain employee wages and selfemployment income, each of which were previously subject to a 2.9% tax, including the employer portion of the Medicare tax on employee wages. Generally, the additional Medicare tax on investment income applies to the extent that modified adjusted gross income exceeds $250,000 for married individuals filing jointly and $200,000 for individual filers, and the additional Medicare tax on wages and selfemployment income applies above a threshold of compensation income of $250,000 for joint filers and $200,000 for individual filers.

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