American Taxpayer Relief Act Of 2012

DEFINITION of 'American Taxpayer Relief Act Of 2012'

A U.S. bill signed by President Obama on January 2, 2013, that had numerous provisions affecting Americans' income tax bills. The American Taxpayer Relief Act of 2012 averted the tax aspect of the “fiscal cliff” by preventing many tax breaks from expiring as scheduled. Furthermore, it delayed mandatory congressional spending cuts called “the sequester” until March 2013. It also raised the marginal tax rate for certain high-income households, extended various tax credits, capped the estate tax and patched the alternative minimum tax, among other things.

BREAKING DOWN 'American Taxpayer Relief Act Of 2012'


The American Taxpayer Relief Act of 2012 made the Bush tax cuts permanent, which meant that marginal income tax rates remained at 10, 15, 25, 28, 33 and 35 percent for most taxpayers instead of increasing. However, it raised taxes on individuals earning more than $400,000 and families earning more than $450,000 annually by increasing the top marginal income tax rate to 39.6%. It also established a $5 million estate tax exclusion and a 40% maximum estate tax rate instead of a $1 million exclusion and 35% maximum rate.
 
The ATRA capped the tax rates on long-term capital gains and qualified dividends at 15% (with the exception of a 20% rate for the highest income earners). Those in the lowest two tax brackets will continue to pay a 0% rate on these types of income. Other tax benefits that were made permanent include the child tax credit, dependent care tax credit, adoption tax credit and employer-provided child care tax credit. The act also increased the amount taxpayers can contribute to Coverdell education savings accounts.
 
The alternative minimum tax exemption amount was made permanent at $50,600 for individuals and $78,750 for married couples, indexed for inflation. The act also repealed the limits on itemized deductions and the phase-out of the personal exemption for individual taxpayers with adjusted gross incomes of $250,000 or less and married couples with AGIs of $300,000 or less. Federal unemployment benefits were extended for one year, and the standard deduction for a married couple filing jointly was permanently made twice the standard deduction for a single individual, relieving the marriage penalty.
RELATED TERMS
  1. Bush Tax Cuts

    A series of temporary income tax relief measures enacted by President ...
  2. Tax Break

    A tax break is a savings on a taxpayer's liability. A tax break ...
  3. Taxpayer Relief Act Of 1997

    One of the largest tax-reduction acts in U.S. history, this legislation ...
  4. Effective Tax Rate

    The average rate at which an individual or corporation is taxed. ...
  5. Proportional Tax

    A tax system that requires the same percentage of income from ...
  6. Tax Benefit

    A tax benefit is an allowable deduction on a tax return intended ...
Related Articles
  1. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  2. Taxes

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  3. Taxes

    Personal Income Tax Guide: Basic Concepts

    By Ken ClarkOne of the most important but misunderstood concepts in tax planning is the mechanics of the United States' progressive tax system. When asked how this system functions, most people ...
  4. Taxes

    Explaining Progressive Tax

    A progressive tax is a levy in a tax system where the tax rate increases as the taxable base increases.
  5. Personal Finance

    What's a Marginal Tax Rate?

    The marginal tax rate is based on a progressive tax system, where tax rates for an individual will increase as income rises. This method of taxation aims to fairly tax individuals based upon ...
  6. Taxes

    Top Tax Issues For High-Net-Worth Individuals

    Wealth brings benefits, but from a tax perspective it creates special challenges. Here are some tax issues to pay attention to.
  7. Your Practice

    Tax Time is Coming; Don't Be Caught Off Guard

    It's time to think about tax returns again. The good news is that the regulations in 2016 have not changed dramatically from last year.
  8. Taxes

    How Are Capital Gains And Dividends Taxed Differently?

    Individuals in the 25% or higher tax bracket pay a 20% tax on long-term capital gains.
  9. Professionals

    Types Of Taxes

    These taxes are unavoidable for corporations.
  10. Taxes

    Paying Uncle Sam: From Tobacco To $1 Trillion

    The services we rely on, like education, law and security, were built on taxes.
RELATED FAQS
  1. How does the marginal tax rate system work?

    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
  2. What is the difference between a state income tax and a federal income tax?

    Learn the difference between state income tax and federal income tax based on tax rates, deductions, tax credits and taxable ... Read Answer >>
  3. How can I lower my effective tax rate without lowering my income?

    Discover how to reduce your effective tax rate without losing income by maximizing adjustments and deductions, earning tax-free ... Read Answer >>
  4. What's the difference between a tax rate and a tax bracket?

    These two terms are often incorrectly used interchangeably. Find out the difference between your tax rate and your tax bracket. ... Read Answer >>
  5. Is the marginal tax rate a progressive tax?

    Learn how the marginal tax rate is a progressive tax that takes a higher percentage of income tax from high-income earners ... Read Answer >>
  6. How do I find out what my tax bracket is?

    Learn the information you need to determine what your tax bracket is. Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center