Well, Congress finally got around to addressing the fiscal cliff, with the Senate passing legislation shortly after midnight and the House expected to vote today or tomorrow.
Thus, while technically went over the cliff, it should be fixed before it really matters. So what did they agree on?
Here’s a quick rundown:
- Instead of letting the Bush era tax cuts expire in their entirety, the current structure of the federal income tax brackets will be preserved for everyone earning less than $400k (single filers) or $450k (for couples filing jointly). For those over that threshold, there will be a new 39.6% tax bracket.
- Estates will now be taxed at a top rate of 40%, with the first $5M (individuals) or $10M (couples) being exempted from the calculation. In 2012, the rate was 35%.
- Long term capital gains and qualified dividends will now be taxed at 20% (vs. 15%) for those above the $400k/$450k threshold. Note that this rate doesn’t apply to all of their capital gains and dividends. Rather, it’s for amounts that take their income above the threshold.
- The AMT has been (finally!) fixed by indexing it to inflation. Thus, it won’t have to be patched annually.
- The expansions of the child tax credit, earned income credit, and college tuition credit have been extended for five years.
- The accelerated “bonus” depreciation of business investments in property and equipment has been extended for a year, as have credits for R&D costs and investment in renewable energy.
- Long-term unemployment benefits have been extended for 2013.
- A 27% reduction in Medicare payments to doctors has been blocked for one year.
- The temporary “payroll tax holiday” has been allowed to expire.
- Finally, the $109B in “sequestration” cuts has been delayed for two months. In other words, we get to do this all over again — not to mention the upcoming debt ceiling debate.
That’s all for now. Happy New Year.