The fiscal cliff deal contains a wide array of tax provisions that will affect taxpayers. Here's the list of what is -- and isn't -- in the agreement:
Payroll taxes: Wage earners will now pay a 6.2% payroll tax on the first $113,700 in wages since the deal did not extend the 4.2% rate that had been in place for two years. That means workers earning the national average salary of $41,000 will receive $32 less on every biweekly paycheck.
Tax rates: Taxes are going up on individual filers with incomes above $400,000 and couples above $450,000. The wealthy will pay 39.6% on income above this threshold, up from the 35% rate put in place in 2001. All other current income tax rates -- ranging from 10% to 33% -- are set permanently into law.
Investment taxes: The capital gains and dividend tax rates for filers earning more than $400,000, or $450,000 for couples, will increase to 20% from 15%. Those in the two lowest tax brackets will pay 0%, while all others will pay 15%. (Some investors will also pay an additional 3.8% tax on certain investment income as part of a separate tax previously enacted to pay for the Affordable Care Act.)
Family tax breaks: Tax breaks important to families that were part of President Obama's Recovery Act are extended for five years. They include: American Opportunity Tax Credit, a partially refundable credit of up to $2,500 a year for four years for low-income families; Child Tax Credit, which allows lower-income parents to claim as much as $1,000 for each child under age 17 and is refundable for some, and the Earned Income Tax Credit, which provides a credit for working Americans with low- and moderate-incomes. The expanded dependent care credit, which allows certain taxpayers to deduct up to 35% of expenses to a maximum of $6,000 for two children, is permanently extended.
Itemized deductions/personal exemption: Filers making $250,000, and married couples making $300,000, will be limited in the personal exemptions and itemized deductions they can take. Those with incomes above $422,500 will not qualify for a personal exemption.
Alternative minimum tax: Many in the middle class will be protected from the AMT since the income exemption level will be permanently adjusted for inflation.
Estate taxes: The exemption for estate taxes remains at $5.12 million and will be indexed to inflation going forward. But the top rate rises to 40%, from 35% for those in the highest income bracket.
Marriage penalty: Married couples will continue to receive a standard deduction that's twice that of individuals. And the income ranges for the 10% and 15% tax brackets are also doubled.
Debt forgiveness: Homeowners who receive principal forgiveness or go through a short sale or foreclosure will not have to pay tax on the amount of debt forgiven since the deal extends this 2007 act by one year.
Tax breaks: The deal extends a bevy of tax breaks. So filers can continue to deduct state and local sales taxes. Teachers can continue to get a $250 break on school supply expenses. Eligible students can continue to deduct tuition and other education-related expenses. Individual Retirement Account holders who are older than age 70.5 can continue to make tax-free distributions for charitable purposes.
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