One-page overview of the 9 major tax issues addressed by the recent fiscal cliff deal.

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Highlights from the “Fiscal Cliff Deal” (aka – the American Taxpayer Relief Act of 2012):
Social Security - Employee portion of Social Security withholding tax moved back up to 6.2% from 4.2%, the level it had
been for the previous two years.
Permanent AMT Fix – The Alternative Minimum Tax got a permanent fix for the first time in decades. Exemption
amounts were adjusted and will remain permanently indexed to inflation. This change was retroactive to the start of
2012.
The Estate Tax – increased to 40% from 35% beyond the maximum exemption amount of $5.12 million for individuals
and $10.24 million for couples. In future years the exemption amount will be indexed to inflation
Income Tax Rates – rates remain unchanged for all brackets however a new top tax bracket was created. For those
individuals with incomes over $400,000 and couples with incomes over $450,000 the top rate is now 39.6%. The old top
rate was 35%.
Long Term Capital Gains – the tax on long term gains, e.g., investments held longer than 12 months, and qualified
dividends will remain at 15% for those individuals making less than $200,000 and $250,000 for couples. For individuals
making between $200,000 and $400,000 and couples making from $250,000 and $450,000 the effective rate will
increase to 18.8% inclusive of the new 3.8% Medicare Surtax that was part of the Patient Protection and Affordable Care
Act (PPACA). For individuals with incomes over $250,000 and couples over $450,000 the new official rate on long term
gains will be 20%. HOWEVER -- The effective rate for long term capital gains for these higher income earners will
increase to 23.8% inclusive of the new 3.8% Medicare Surtax.
Short Term Capital Gains – the tax rates applied to short term gains, e.g., investments held for less than 12 months,
remain the same. It is important to note that, just as with long term capital gains, individuals making more than
$200,000 and couples making more than $250,000 may be exposed to an additional 3.8% tax on gains in the form of the
new Medicare Surtax. This means that the new top rate on short term capital gains increased from 35% to 43.4%.
Unemployment Insurance – the federal emergency unemployment insurance benefit was extended for another year for
those individuals who have been unemployed for more than 26 weeks.
Roth 401k – employees at companies that offer a Roth 401k option in addition to a traditional 401k are now allowed to
convert some or all of their regular 401(k) balance to a Roth regardless of age. Previously, a 401(k) to Roth 401(k)
conversion could only be executed by employees who were also eligible to take a distribution from a plan. Typically
plans allowed for distributions once an employee reached age 59½.
Personal Exemptions and Deductions – the phaseout of tax exemptions and deductions was reinstated. Individuals
earning more than $250,000 and couples earning more than $300,000 will now have their ability to realize the full value
of both exemptions and deductions phased out as income surpasses these thresholds.
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