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American Taxpayer Relief Act of 2012 – Update

On January 1, 2013, the American Taxpayer Relief Act of 2012 was passed by the Senate and the House of Representatives.

Candidates preparing for the 2013 version of the EA exam (ie, the EA exam that will be given beginning May 1, 2013) should be aware of the more significant changes, which include:

  1. Individuals who make under $400,000 a year ($450,000 for joint filers):

    • Will generally not be affected by rate changes. Tax brackets will remain at 10%, 15%, 25%, 28%, 33%, and 35%. (In addition, the marriage penalty relief has not been changed and will continue.)

    • Will continue to have dividends taxed at capital gain rates. The 0% rate will still apply to the lowest two tax brackets.

  2. Individuals who make more than $400,000 a year ($450,000 for joint filers):

    • Will be subject to a new 39.6% tax bracket.

    • Will have qualified dividend and capital gain rates taxed at 20%.

  3. Social security payroll tax for employees will increase to 6.2% (previously at 4.2%).

  4. The AMT exemption has been made permanent and will allow many taxpayers to avoid paying AMT. The increased exemption amounts for 2012 are $50,600 for unmarried taxpayers and $78,750 for taxpayers filing jointly. These amounts will be indexed for inflation.

  5. Personal exemptions and limitations on itemized deductions for individual taxpayers who have adjusted gross income exceeding $250,000 ($300,000 for joint filers) now face the reinstated phase-out.

  6. The following deductions and credits have been extended: state/local sales tax deduction, child tax credit, adoption credit, American Opportunity Tax Credit, educators’ classroom expense deduction, and the non-business energy property credit.

  7. The $5 million exemption for estate, generation-skipping transfer (GST), and gift taxes has been permanently extended. These exemptions will be indexed for inflation. Top estate, GST, and gift tax rates increase to 40% (previously 35%). Spousal portability is permanent.

  8. Many credits for businesses have been extended. The most notable business credit extended is the Work Opportunity Tax Credit, which is now available through the year 2013. Section 179 depreciation deduction of $500,000 and the bonus depreciation of 50% have also been extended. Leasehold improvements will continue to have a 15-year recovery period.

Rest assured that these new developments will be reflected in the 2013 editions of Gleim EA Review. Gleim encourages you to have a familiarity with the above changes to help with your professional career. None of these changes will affect customers studying for the current EA exam (i.e., the EA exam offered until February 28, 2013).