by Richard S. Schwartz CPA. CVA
Will the re-elected President and the new Congress let all these tax rules expires? We’ll have to wait and see. Here is a recap list of all the changes that will be made to the Tax Code if Congress and the President aren’t able to pass a Tax Act soon:
Personal Income Tax Rates:
- 10% tax rate increases to 15% tax rate
- 15% tax rate remains at 15% tax rate (but a portion increases to 28% tax rate for people filing as Married Filing Jointly)
- 25% tax rate increases to 28% tax rate
- 28% tax rate increases to 31% tax rate
- 33% tax rate increases to 36% tax rate
- 35% tax rate increases to 39.6% tax rate
Tax Rates on Capital Gains and Qualified Dividends:
- 0% long-term capital gains tax rate for taxpayers in the 10% and 15% tax brackets will increase to 15%.
- 15% long-term capital gains tax rate for all other taxpayers will increase to 20%.
- Qualified dividend tax rate at 15% will no longer exist. Dividends will be taxed at your marginal tax rate.
- 3% phase-out on itemized deductions for income that exceeds certain thresholds is re-instated.
- Phase-out of personal exemptions once income exceeds certain thresholds is re-instated
New Medicare Taxes:
- 0.9% Medicare tax (referred to as the Health Insurance or HI tax) imposed on wages and SE income that exceeds $200,000 for single filers and $250,000 for MFJ filers. (Payable by employees only. Employers are not required to match that tax.)
- A 3.8% Medicare surtax on net unearned/net investment income if MAGI exceeds $200,000 for single filers and $250,000 for MFJ filers. Net investment income includes interest, dividends, annuities, royalties, rents, passive income, capital gains. The surtax is the lesser of:
1. Net Investment income, or
2. The excess of MAGI over the threshold amount
Social Security Tax:
- Social Security taxes withheld from an employee’s salary revert back from 4.2% to 6.2% of earnings.
- Social Security wage base increases from $110,100 to $113,700.
Alternative Minimum Tax:
- This annual patch had already expired at the end of 2011, and has yet to be renewed for 2012 or beyond. Check out Andrew’s article in the MDTAXES March 2012 newsletter: A.M.T. Once Again Spells Trouble For Millions of Taxpayers.
Depreciation and Equipment Purchases:
- Maximum Section 179 depreciation reduces from $139,000 to $25,000.
- Bonus depreciation expires.
- Purchases of medical devises will be subject to a 2.3% excise tax on purchase price of the equipment.
Estate and Gift Taxes:
- $5M exemption (with an allowance of portability between spouses – when one spouse died the unused $5M exemption of the deceased spouse would be added to the exemption of the surviving spouse) reverts back to $1M (with no portability).
- 35% Estate tax rate changes to progressive tax rates with the highest rate set at 55%.
- Annual gift tax exclusion increased to $14,000.
- 529 college savings amount increased to $70,000 ($140,000 joint)
Other Expiring Provisions:
- Marriage penalty relief (expending of the 15% tax bracket and standard deduction for MFJ filers to be twice that of Single taxpayers).
- Dependent care credit based upon $3,000 per child and $6,000 for two or more children reduces to $2,400 and $4,800 respectively.
- The child tax credit amount reverts from $1,000 to $500 and is no longer a “refundable” credit.
- The American Opportunity college tuition tax credit. (The Hope and Lifetime Learning Credits both continue.)
- The exclusion from gross income for discharge of indebtedness on a principal residence.
- The exclusion for employer-provided education assistance (with an annual max of $5,250).
- The $250 deduction for teacher expenses.
- The deduction for Mortgage Insurance Premiums.
- The deduction for state and local sales tax instead of state income taxes on Schedule A.
- The above the line deduction of up to $4,000 for qualified tuition expenses.
- The tax-free treatment of charitable distributions made from IRA’s of people over the age of 70.5.
- Tax credits for plug-in vehicles and alternate fuel vehicles.