In the early hours of 2013, the Senate passed American Taxpayer Relief Act (89-8) followed by the U.S. House, which passed it last night (257-157), mostly on the backs of Democrat support. This bill will bring additional revenue into the federal coffers, temporarily pushing off the effects of the sequestration — immediate and deep cuts in military and other discretionary spending — and permanently address the Alternative Minimum Tax (AMT). However, it did not do much to deal with spending cuts or entitlement savings.
Included in the Fiscal Cliff deal was a nine-month extension of the 2008 Farm Bill. Unfortunately, this extension does not end the direct payments to commodity farmers, which was part of the new Farm Bill versions that cleared the Senate and the House Agriculture Committee last summer, or the savings that would have gone along with it. Furthermore, it puts funding for important programs like the Specialty Crop Research Initiative and the National Clean Plant Network in significant jeopardy, requiring that any funds for these programs be allocated through appropriations, which is unlikely to happen. However, the House Agriculture Committee plans a new Farm Bill mark-up on February 27, signaling an interest in picking up where they left off and an interest in completing a new five-year bill before the end of fiscal year 2013, on September 30th.
Some of the effects of the Fiscal Cliff deal still being sorted out but here are some things we do know.
2013 Tax Brackets
Not over $8900 — 10%
$8900 to $36,150 — 15%
$36,150 to $87,550 — 25%
$87,550 to $182,600 — 28%
$182,600 to $397,000 — 33%
$397,000 to $400,000 — 35%
Over $400,000 — 39.6%
2013 Capital Gains Rates
2013 Estate Taxes
- Individual Incomes below $400,000 ($450,000 joint returns) remain at 15%
- Individual Incomes at $400,000 ($450,000 joint returns) or above goes to 20%
2013 Direct Expensing
$5 million will be exempted.
- Maintains spousal portability.
- Once over $5 million tax the top marginal rate goes to 40%.
- New legislation will maintain the 2012 levels of a write-off maximum of $500,000 if less than $2 million in equipment and machinery are purchased that year.
- In 2014 direct expensing returns to pre-2001 levels of $25,000 in write-offs if purchases are below $200,000.
The legislation does a lot of other things as well, including but not limited to:
- Ending the social security tax holiday
- Increase in the employee’s hospital insurance portion of payroll taxes from 1.45% to 2.35% for income over $200,000 for individuals ($250,000 for joint returns; employer rates does not change).
- A new 3.8% tax called the Unearned Income Medicare Contribution for investment income (e.g., interest, dividends, royalties, rents) for individuals with an adjusted gross income over $200,000 ($250,000 for joint returns).
- The 50% depreciation bonus was extended through 2013.