On New Year’s Day 2013, Congress passed the much-talked about fiscal cliff tax legislation through The American Tax Relief Act of 2012 which is expected to be signed by President Obama.
The act includes a permanent patch of the Alternative Minimum Tax (AMT), the permanent reduction of tax rates, and reinstating various tax deductions such as the Educator Expense Deduction, the Tuition and Fees Deduction, state sales taxes in lieu of state income taxes, among others.
Now, are you asking yourself, “What does this mean for me?” You are certainly not alone. Here is a quick snapshot of what this could financially mean to you and your family in 2013.
The Alternative Minimum Tax (AMT): The AMT patch was permanently extended, which means 34 million middle-income families can celebrate the New Year with an average of $3,700 back in their pockets. Under current law, the AMT typically hits taxpayers who have a household income of over $75K and are married with more than two kids.
The Tax Extenders: The “Tax Extenders” refer to a broad set of temporary tax laws. Here are just a few of the tax deductions and credits that were included in this “Tax Extenders” package:
- The Educator Expense Deduction– If you are a teacher, you can claim up to $250 of classroom expenses for supplies, materials, books and software.
- Tuition and Fees Deduction – College students or parents can once again deduct education expenses related to schooling, including tuition, books and other supplies, up to $4,000.
- Mortgage Debt Relief – Previously, taxpayers who have mortgage debt canceled or forgiven after 2012 may be required to pay taxes on that amount. Under the new law, up to $2 million of forgiven debt is eligible to be excluded from income in 2013.
- Energy Tax Breaks – Homeowners who made energy efficient improvements to their homes in 2012 will still be able to claim the Residential Energy Property Credit. This credit could mean as much as $500.
Reduction in Individual Income Tax Rates: 98% of Americans will continue to see lower tax rates as a result of the permanently extended Bush Tax Cuts, keeping more money in their pocket. Tax rates will remain at 10%, 25%, 28%, and 33% on incomes below $400,000 if single ($450,000 married filing jointly). The top rate goes from 35% to 39.6% only for the highest earners. Dividends and capital gains top tax rate goes to 20% from 15% for those with income above $400,000 ($450,000 if filing jointly).
Tax Relief for Families and Children
- Child Tax Credit: You will continue to be able to qualify for a $1,000 tax credit for each dependent child you are able to claim under the age of 17.
- Earned Income Tax Credit (EITC): If you have three children and are married you can still receive a maximum tax credit worth over $5,700.
- Dependent Care Credit: Increased dependent care credits remain in place that allow you to claim up to $2,100 of your eligible dependent care cost for two or more children.
- Commuter Transit Tax Provision: Average hardworking families can continue to save money on their daily commutes through higher allowable pre-tax payroll deductions if employers offer commuter transit plans. In 2013 taxpayers will see a federal tax savings up to about $570 per year in their paychecks.
We know your money is important to you and that’s why we’ve planned ahead for these changes. TurboTax will automatically update to reflect all recent changes, and will be ready for you to start your taxes on January 3rd.
Plus, remember, at TurboTax, we’re here for you. If you still have questions about the tax law changes, only TurboTax software lets you talk to CPAs, EAs or tax attorneys as often as you like to answer your questions while you’re preparing your taxes. And you can ask as many questions as you want, as often as you like – all for free. We’ll help you get your biggest refund – guaranteed and help make sure your taxes are done right. We guarantee all our calculations are 100% accurate – so you can be sure you get every penny you deserve.