News on the bill that diverted the Fiscal Cliff are starting to come out. Here are some tidbits:
For example, it is good news for taxpayers that the Alternative Minimum Tax (AMT) laws have now been changed, and the law now permanently adjusts the parallel tax exemption amount, effective for the 2012 tax year, to $50,600 for single filers and $78,750 for married taxpayers. It is also good news that the AMT exemption amounts are then indexed annually for inflation. Yet, realize that these changes do not get rid of all of the financial pain; it just reduces it.
What is not good news for taxpayers are changes in the Personal Exemption Phaseout (PEP) and the Pease Provision. The legislation restores and makes permanent two backdoor tax increases for joint filers with income above $300,000 ($250,000 for singles). When it was last in effect, the PEP reduced or eliminated the value of personal exemptions for taxpayers earning more than the income threshold. PEP is the personal exemption phaseout of itemized deductions which will reduce that amount for wealthier taxpayers by 2 percent, while Pease is the 3-percent phase out of itemized deductions.
Just to rub some salt in the taxpayers’ wounds, the payroll tax rate for individuals in 2013 will increase to 6.2 percent from 4.2 percent, and there will be a hike in the Medicare part of the payroll tax. The new Medicare law states that for the first $200,000 ($250,000 for married couples), the current rates will remain (1.45 percent for employees and 1.45 percent for employers), but for incomes above that level, the rates will be 2.35 percent for an employee and 3.8 percent for the self-employed.
Assistant State Treasurer
Chief Investment Officer
State of Louisiana
Department of the Treasury