The 2012 ACT retains this 15 % LTCG rate and 0 % LTCG rate for low income taxpayers . However , single taxpayers with taxable income above $ 400,000 or married filing joint above $ 450,000 are subject to a 20 % tax rate on their LTCG income .
Qualified Dividend Tax Rates Prior to 2003 , dividends were taxed the same as interest income . They were subject to the taxpayer ’ s marginal tax bracket , which could be as high as 35 %. Since 2003 , qualified dividend income was given the same preferred tax rate as LTCG income . The 2012 ACT retains the LTCG rate for qualified dividends .
Itemized Deduction And Personal Exemption Phaseouts Prior to 2010 , higher income taxpayers would lose all or a portion of their itemized deductions and personal exemptions if their adjusted gross income exceeded certain thresholds . From 2010 – 2012 , these phaseouts were eliminated thereby giving higher income taxpayers full benefit for their deductions .
The 2012 ACT did not continue the elimination of these phaseouts . The phaseout will be applicable starting in 2013 . They will affect single taxpayers with adjusted gross income over $ 250,000 and married filing joint over $ 300,000 .
Alternative Minimum Tax The Alternative Minimum Tax , ( AMT ), was enacted about 30 years ago with specified exemption amounts . The original intent was to make sure about 150 wealthy individuals paid their fair share . The legislation contained exemptions designed to protect the middle class . The exemption amounts were never indexed for inflation , creating a situation requiring Congress to pass new legislation every year to avoid subjecting millions of middle class Americans to the increased tax .
AMT is computed at different tax rates than regular income tax and without many income tax deductions such as state and local taxes , medical expenses , and miscellaneous itemized deduction . The American Taxpayer Relief Act of 2012 ( ATRA ) adjusted the exemption amounts and indexed them for future inflation . The ATRA also provided for the Child Tax Credit to be claimed against AMT .
Child Tax Credit The Child Tax Credit ( CTC ) was due to expire ; however , the ATRA eliminated the sunset provisions , thereby allowing the Child Tax Credit to continue .
Healthcare Act of 2010 The Healthcare Act of 2010 , otherwise known as Obamacare , is to be funded primarily by two tax law changes , both of which took effect January 1 , 2013 . The first is an additional . 9 % Medicare Tax on earned income . Previously , individuals paid up to a 2.9 % Medicare Tax on their earnings , 1.45 % if you are an employee receiving Form W-2 , where your employer then picks up the remaining 1.45 %, or the entire 2.9 % yourself if you are self-employed . Beginning January 1 , 2013 , those with W-2 income reaching $ 200,000 will see an additional . 9 % of their earnings above $ 200,000 withheld . Self-employed individuals will pay 3.8 % ( 2.9 + . 9 ) on their earnings above the threshold .
The second tax change to fund Obamacare that went into effect January 1 , 2013 is a tax on a net investment income of 3.8 % for individuals , and estates and trusts with income over $ 200,000 ($ 250,000 if married filing joint ; $ 125,000 if married filing separate ). This new tax is called a Medicare Tax , but it is the first medicare tax to be assessed on OTHER THAN earned income . As such , those individuals living off of unearned income , such as retired individuals , may see a tax liability that they were unable to plan for before they retired .
How Does It Affect You ? The new 3.8 % Medicare Tax on net investment income applies where income is in excess of the threshold amount and can be explained with the following example :
In 2013 , an individual taxpayer has earned income of $ 160,000 and investment income of $ 70,000 . The sum of the two equals $ 230,000 , which exceeds the $ 200,000 threshold for the 3.8 % tax by $ 30,000 . The 3.8 % tax applies to the lesser of the excess over $ 200,000 or the amount of investment income .
Since the former is $ 30,000 and the latter is $ 70,000 , the 3.8 % tax is calculated on the $ 30,000 and the taxpayer will owe an additional Medicare Tax of $ 1,140 for 2013 . Note that the result would be the same if this were a retired individual with $ 230,000 of unearned / investment income .
Medical Expense Deduction Unrelated to Obamacare but still a “ medical ” tax law change taking effect in 2013 is the AGI threshold for deducting medical expenses . Previously , only that portion of medical expenses exceeding 7.5 % of adjusted gross income ( AGI ) was deductible . Beginning with tax year 2013 , only that portion of medical expenses exceeding 10 % of AGI will be deductible .
Business Tax Provisions Of the many business tax provisions that were extended or changed affecting tax years 2012 and 2013 , those most likely to affect the majority of business owners are the depreciation rules . For 2012 and 2013 , the Internal Revenue Code Section 179 deduction limit is raised to $ 500,000 , up from $ 139,000 previously . Bonus depreciation , previously allowed at 100 % for new assets , drops to 50 % for 2012 and 2013 .
Estate Tax Provisions The 2012 Act permanently ( meaning until it changes ) provides for a maximum estate tax rate of 40 % for estates of decedents dying after 2012 , with an exclusion of $ 5 million , adjusted annually for inflation using 2010 as the base year . The exemption amount for 2012 is $ 5,120,000 . The inflationadjusted exclusion amount for 2013 is $ 5,250,000 . The Act also provides a 40 % tax rate and a unified estate and gift tax exemption of $ 5 million ( inflation adjusted ) for gifts made in excess of the annual exclusion starting after 2012 . The annual gift exclusion goes up to $ 14,000 in 2013 .
In addition , the Act continues and makes permanent the portability election between spouses . This provision allows for the transfer of any unused applicable exclusion of the decedent ’ s estate to the surviving spouse .
California does not have an estate gift tax .
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