In the dark of night on January 1, 2013, Congress finally passed a bill (which the President signed on January 2) that temporarily avoids the worst effects of the "fiscal cliff." The American Taxpayer Relief Act of 2012 significantly changes tax rules for individuals and businesses alike. It contains a potpourri of rate changes, extensions of expiring (or expired) provisions, special rules, credits and other modifications that will affect every taxpayer to a greater or lesser extent. It does not, however, represent even a tiny step towards the significant tax reform that most observers long for.
Following is a summary of some of the major provisions of the Act:
1. Income tax rates -- Bush-era tax rates were made permanent for all taxpayers in lower and middle tax brackets. Only the top tax bracket, consisting of individuals with taxable income over $400,000 ($450,000 for married couples), will see an increase in rates from 35% to 39.6% on every dollar over that amount. The new top bracket is effective for taxable years beginning after December 31, 2012.