The American Taxpayer Relief Act

Image by Tax CreditsWe have all heard way too much about the fiscal cliff. For a while, it was a little difficult to figure out what that even meant. At the last minute, various changes were signed into law by President Obama in an effort to avert it.

On January 2, 2013, President Barack Obama signed the American Taxpayer Relief Act. Therefore, now we are talking about that. But, what exactly does this Act do and how might it affect you?

First off, basically everyone will find his or her taxes to be affected in some way. Some, more than others, of course. It depends on several things like salary, whether or not you gift anything, if you have capital gains, etc. Below are some changes so you can see how you might be affected:

 Payroll Tax

Perhaps one of the most immediate things you might notice is a payroll tax increase that left a lot of us with less money in our pockets. That probably caught some by surprise, since it often was overshadowed by other tax and fiscal cliff talk. Why did this increase happen? The payroll tax increase is actually just the payroll tax going back to what it was before a temporary cut expired at the end of 2012. Most workers saw a 2% increase in their Social Security Tax, while some higher wage earners were also hit with a Medicare tax increase. Almost all workers saw a decrease in take home pay that hit their wallets hard. The Miami Herald has an in-depth article that explains it thoroughly and was the basis of our posted information for this section. There you will find more of the ins and outs and how others are being affected by it.

The 39.6 % Tax Bracket

There is now a 39.6% tax bracket. This is for those single folks who have taxable income over $400,000 annually or for joint filers who make over $450,000, as well as a few others.

 Capital Gains

Capital gains tax has increased to 20% plus a surcharge. This will be felt mostly by top earners who are in the new 39.6% tax bracket.

Write-offs

Tax write-offs are now capped. This varies by type of filing and income.

Estate Taxes

The estate tax is 40% after the $5 million exemption, affecting the wealthiest individuals.

Gift tax

Now you can donate $14,000, instead of $13,000, without being taxed on it if it qualifies as a gift under tax law.

Alternative Minimum Tax

The new alternative minimum tax for singles is $50,600 and $78,750 for those married filing jointly.

Various other changes:

  • the previous student loan interest deduction has been continued
  • the adoption credit was made permanent
  • Federal unemployment is extended and helps those unemployed longer than 26 weeks

This is just a sampling of changes. Click here to read the entire American Taxpayer Relief Act on The Business Insider.

Attorney Christopher D. Smith with SmithLaw Attorneys in Sarasota, Florida knows that times are tough economically. In an effort to help those struggling with debt, SmithLaw offers debt mitigation services. You can also find out more about Florida bankruptcy by downloading our free guide or by watching our informational video.

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