13th hour fiscal cliff legislation was passed yesterday that raises taxes slightly and postpones automatic spending cuts for two months. Here are the highlights of the new tax laws:
- Tax rates remain the same for singles earning up to $400,000 and couples earning up to $450,000. Above this income level, the marginal tax rate rises to 39.6%.
- Certain personal exemptions are phased out for individuals with $250,000 of taxable income and joint filers with $300,000 or more of taxable income.
- Capital Gains and Dividend income get a new top bracket of 20% for the highest earners ($400,000 individual taxable income, $450,000 joint). These same earners will be paying a 3.8% healthcare surcharge on investment income.
- The Alternative Minimum Tax threshold has been permanently indexed to inflation.
- The Estate Tax exemption has been set at $5 million and the federal tax rate at 40%.
- The Social Security tax holiday, reducing payroll tax by 2 percentage points, has expired, bringing the payroll tax rate back to 6.2% on the first $113,700 of earned income.