By now, everyone knows the American Taxpayer Relief Act of 2012 raised the income tax rates for the highest earners to 39.6%. Most everyone knows the American Taxpayer Relief Act of 2012 raised capital gain and qualified dividends rates for the highest earners to 20% (before adding the Obama care 3.8%). Some people even know the American Taxpayer Relief Act of 2012 reinstated phase-out’s of personal exemptions. Finally, whoever has received a 2013 paycheck already knows their take home pay is reduced due to the expiration of the 2% Payroll Tax Holiday.
In this series of posts, we’ll look at some of the provisions of the American Taxpayer Relief Act of 2012 that aren’t getting as much coverage but which may have significant consequences to many taxpayers.
In the run up to the passage of the American Taxpayer Relief Act of 2012, both Republicans and Democrats made considerable noise about limiting itemized deductions. Proposals range from hard caps on deductions, to limits based on a percentage of income. The final law does provide for itemized deductions to phase out at the $250,000 level for individuals ($300,000 for married taxpayers filing jointly). What has received less coverage is the fact that the new law did not include a new phase-out structure for itemized deductions. Instead Congress used the existing structure known as PEASE limitations, which were put into place in 1990. This phase-out structure provides that itemized deductions cannot be eliminated beyond 80%. Put another way, all taxpayers will receive at least 20% of their itemized deductions.
For more information on the American Taxpayer Relief Act of 2012 and how it affects you, or for other tax law concerns, contact Horowitz Law Offices.