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2013: Life After the Fiscal Cliff

As of January 1, 2013, Congress agreed upon legislation that would prevent the expiration of many tax deductions and favorable tax rates.  The American Taxpayer Relief Act of 2012 (PL 112-240) was officially signed into law by President Obama on January 2, 2013.  The following is a summary of the more popular provisions of the legislation:

  • Income tax rates will not increase (unless you are a single person earning more than $400,000 or a married couple earning more than $450,000)
  • Dividends and capital gains will continue to be taxed at preferential rate of 15% (but 20% for single taxpayers earning more than $400,000 and married couples earning more than $450,000)
  • The exemption amount for the Alternative Minimum Tax is permanently fixed and will be adjusted only for inflation in future years
  • Beneficiaries of IRAs required to receive a minimum distribution are allowed to roll over their distribution to charities in 2013
  • 401(k) plans may be converted to Roth 401(k) plans
  • American Opportunity Tax Credit (education credit) extended to 2017
  • Earned Income Tax Credit and Child Tax Credit extended to 2017
  • Home energy credits extended to 2013
  • Estate and gift tax exemption amounts permanently fixed at $5,000,000 (adjusted annually for inflation)
  • Estate and gift tax rates permanently fixed at 40%

The following was not included as part of the American Taxpayer Relief Act of 2012, but will be new for 2013:

  • Net investment income tax of 3.8% applicable to single taxpayers earning more than $200,000 and married couples earning more than $250,000
  • Additional 0.9% Medicare tax on wages in excess of $200,000 for single taxpayers and $250,000 for married couples
  • Increase of 2% Social Security tax (due to expiration of Payroll Tax Holiday)

For more information about these changes, please contact Nick Nanovic at