Individual Provisions of the American Tax Relief Act

Padgett Business Services of Dunwood, 404-992-5981

Individual Provisions of the American Tax Relief Act

Individual Tax Rates

Essentially,  The  Act is  a  permanent extension  of  the 2001/2003  “Bush”  tax 
cuts  for taxpayers  at  or below  $400,000  for single  filers,  $425,000 for  head  of households, $450,000 for married filing jointly, and $225,000 for married filing
separately  keeping the rates at 10%, 15%, 25%, 28%, 33%, and 35%. Taxable income above these amounts will betaxed at 39.6%.

Phase-out of certain itemized deductions

Individuals with adjusted gross incomes (AGI) under $250,000 for single
filers, $275,000 for head  of  household, $300,000  for  married filing  joint,  and 
$150,000  for  married filing  separately  will  not be  subject  to phase-out  of  itemized deductions.  These  amounts are adjusted for inflation. Above these amounts, itemized deductions allowed will be reduced by the  lesser  of 

1)  3%  of excess  AGI  or 
2)  80%  of itemized  deductions  otherwise 
allowable.

Medical expense, investment interest, non-business casualty losses and
gambling losses are not subject to the phase-out.

Phase-out of personal exemptions

Individuals with adjusted gross incomes (AGI) under $250,000 for single
filers, $275,000 for HOH, $300,000 for MFJ, & $150,000 for MFS will not be subject to phase-out of itemized deductions.  These  amounts are  adjusted  for inflation.  Above  these amounts,  personal exemptions allowed will be reduced by 2% for each $2,500 (or fraction of that amount) by which the AGI of a taxpayer (other than a married taxpayer filing separately) exceeded the threshold amount for the taxpayer. For married individuals filing separately, the applicable percentage was 2% for each $1,250 (or fraction of that amount) by which the taxpayer's AGI exceeded the threshold amount. The applicable percentage couldn't exceed 100%

Permanent Extensions

Other provisions from the Economic Growth and Tax Relief Reconciliation
Act of 2001 that have been extended permanently after years of temporary extensions
include:

Child tax credit for $1,000

Adoption credit and adoption assistance programs up to $10,000

Dependent care credit for expense up to $3,000 for one child and $6,000 for two or more children (subject to phase-out)

 Allowance of credit for employer expenses for child care assistance

Elimination of marriage penalty in standard deduction, tax rates & earned income credit

Coverdell education savings account contributions up to $2,000

Exclusion for employer-provided educational assistance up to $5,250

Elimination  of 60  mo.  limit &  increase  in income  limitation  on student  loan  interest deduction

Estate and GST tax exemption amount at $5 million (adjusted for inflation)

Increase in maximum estate and gift tax rate to 40% for taxable estates over $1 million

Election  for surviving  spouse  to use  unused  estate tax  exclusion  amount provided    the  deceased spouse’s executor timely files an estate tax return and makes the election

Capital gains rates at 0% (below the 25% normal tax bracket), 15% (below 39.6% bracket) and 20% (39.6% bracket) including qualified dividend

Alternative  Minimum Tax  permanent  relief has  been provided through an annual inflation adjustment

Provisions extended for five years through 2018

American Opportunity TaxCredit

Child Tax Credit refund ability provisions

Increased Earned Income Credit provisions

Other Provisions extended

Deduction of certain expenses for school teachers through 2013

Exclusion  of gross  income  from discharge  of  qualified 
principal  residence  indebtedness through 2013

Mortgage insurance premiums treated as qualified residence interest through 2013

Deduction of state and local general sales taxes through 2013

Deduction for qualified tuition and related expenses through 2014 including retroactive for 2012

Tax-free distributions from IRA plans for charitable purposes through 2013. Additionally, distributions during January 2013 are permitted
to be treated as a 2012 distribution