Congress Passes Bill to Avoid Fiscal Cliff

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In January of 2013, Congress passed a bill to avert the fiscal cliff, which maintains the Bush-era tax cuts for individuals earning less than $400,000 per year and couples earning less than $450,000.

The bill raises taxes for those making more than these income thresholds, increasing tax rates from 35 to 39.6 percent for individuals making more than $400,000 and couples making more than $450,000 per year. Taxes on capital gains and dividends will also increase to 20% for individuals and couples earning income above these thresholds.

The bill also contains other provisions. Among those, it extends unemployment insurance for a year; caps itemized deductions for individuals making $250,000 and for married couples making $300,000; permanently adjusts the alternative minimum tax for inflation; raises the estate tax to 40%; and renews many childcare, tuition, research and development, and business related tax credits. In addition, it delays a series of automatic cuts in federal spending for two months.

Despite this measure, Social Security tax rates will return to 6.2% for 2013, up from the temporary rate decrease (4.2%) last year.

Source: CNN, National Journal

Additional Resources

Tax Changes Affecting 2013 Payrolls – What You Need to Know (Source: ADP)
2013 Federal Tax Legislation - What to Expect  (Source: ADP)
Fiscal Cliff Tax Deal: What Does It Mean for Small Business? (Source: Forbes)
Here's What's in the Fiscal-Cliff Deal (Source: National Journal)
Congress Passes Fiscal Cliff Act (Source: Journal of Accountancy)