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 The act also repealed the limits on itemized deductions and the phase-out of the personal exemption for individual taxpayers with adjusted gross incomes of $250,000 or less and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.
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