Senate Passes Fiscal Cliff Legislation

Acting at the last minute to keep the country from going off the so-called fiscal cliff, the Senate on December 31, 2012, passed the American Taxpayer Relief bill (H.R. 8)  by a vote of 89 to 8.  The bill permanently extends the tax cuts from the 2001 and 2003 tax acts with a few exceptions  A 39.6 percent tax rate would apply to single filers with incomes over $400,000 ($450,000 for joint filers).  The phase-out of itemized deductions would also return for single filers with incomes over $250,000 ($300,000 for joint filers).  The estate tax exemption amount would be retained at an inflation adjusted $5,000,000 but the maximum tax rate is increased to 40 percent.  The top capital gains rate would also be increased to 20 percent for higher income taxpayers.  The bill would also permanently extend alternative minimum tax relief.

Five-year extensions are included for the American Opportunity Tax Credit, the Child Tax Credit, and the Earned Income Tax Credit.  Most of the provisions that had expired at the end of 2011 were extended for two years, however, a number of the expired provisions were not included in the extension.  The more popular individual and business provisions were extended, and several of those also including modifications.  Bonus depreciation and small business expensing of capital acquisitions were included in the extensions.

A number of non-tax issues were also addressed in the legislation, including unemployment, health, agriculture and sequestration issues.  The payroll tax reduction that had been in place for the last couple of years was not included.

The House is debating the legislation and may vote as soon as January 1 but it is not clear if the legislation has sufficient support to pass the House.  President Obama supports the legislation.

 

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Wolters Kluwer Tax and Accounting

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